GM Asked by Banks to Invest More in Daewoo

Threatening to mature both loans and foreign exchange forward contracts, the Korea Development Bank asked American manufacturer GM to raise more money for its local unit, Daewoo. According to Min Euoo-sung, the bank's CEO, GM Daewoo needs to place 162.7m common shares for at least KRW8,000 (US$6.87) each with existing shareholders.

"GM should take the responsibility of a major stakeholder... If GM does not accept the requisite, we will call back maturing loans and forward exchange contracts," Min was quoted as saying by Reuters.

The unpleasant development comes as a result of GM's latest attempt to get additional loans from several banks, including the Korea Development Bank. GM has already burned through a $2 billion credit line and is now asking for more.

The trouble GM Daewoo finds itself in is largely due to the mishandling of currency risks last year, which led to a loss of some $2.6 billion, representing about 25 percent of the carmaker's gross sales in 2008. The loss was criticized by KDB.

"GM Daewoo's management is putting the company's future at stake instead of trying to rationally resolve the mess they made," Kim Young-sun, National Party National Policy Committee chairwoman was quoted as saying by the Korea Herald.

"The company is making comprehensive efforts to cut costs, so scaling back R&D is not the biggest and only measure we're taking," Park Hae-ho, GM Daewoo spokesman tried to clarify the carmaker's position.