Kumho Tire union votes for Doublestar sale

The union of financially-troubled Kumho Tire voted Sunday to accept its creditors’ plan to sell the tire maker to China’s Doublestar.

In a vote held among 2,741 union members, 1,660 or 60.6 percent okayed the sale, which union leaders, management and creditors had agreed to in principal a day earlier

According to the plan, Doublestar will purchase a 45 percent stake in Kumho Tire for 646.3 billion won ($608 million) through a rights issuing in the next three months.

With more than half of the union members agreeing to the plan, Kumho Tire avoided court receivership. Starting from a 27 billion won commercial paper which is due today, other liabilities are also reaching maturity. The company’s total debt is 2.4 trillion won.

Following the agreement, the Korea Development Bank (KDB) — the main creditor — will sign a sales contract with Doublestar. The stake held by eight creditors of Kumho Tire will drop to 23.1 percent from 42 percent.

The creditors had already decided to reschedule Kumho Tire’s 1.3 trillion won debt due March 30, if the union agreed to the sale plan.

Also the KDB will inject additional money to cover looming debts. A 200 billion won loan will be extended to help the company deal with urgent expenditure including on facility improvements.

Doublestar has pledged to invest in Kumho Tire and guarantee job security for the existing 5,000 employees, including about 2,000 office workers, for three years after the acquisition. It vowed to remain the major shareholder in the company for the next five years or until creditors sell their remaining shares.

In return, union members agreed to forego their bonuses for 2018 and 2019 as well as a wage freeze until 2019.

A vote to accept the deal was expected, because the members were aware of the risk of the company being liquidated after being placed under court receivership. Kumho Tire’s liquidation value of 1 trillion won far outweighs its “going concern” value of 460 billion won. However, the percentage voting yes was lower than anticipated, as some union members reportedly balked at the foreign acquisition, citing their concern over massive layoffs after three years, and technology theft.

While the deal solves Kumho Tire’s liquidity crunch, these union members claim there will be no reason for Doublestar to keep factories in Korea operating.

The Qindao-based company is currently facing limits in building additional facilities in China due to the government regulations. So it resorted to buying Kumho Tire, which has several factories in China. However, these factories are running at a loss.

The union claims Kumho Tire’s factories in Gwangju and the surrounding area require additional facilities investment, thus giving them no value for Doublestar. The union had demanded a 10-year plan from Doublestar but received no additional response.

“For the union, there is no other option but to believe Doublestar for the time being,” an industry official said. “It remains to be seen whether the Kumho Tire case will end up the same as the SsangYong Motor sale to China’s Shanghai Automotive Industry.”

The 2004 sale of Ssangyong Motor was heavily criticized as the Chinese company allegedly took the company’s core technologies while not investing enough to strengthen the Korean carmaker’s competitiveness.