South Korea’s state-run Korea Development Bank (KDB) agreed to provide short-term loans to the Korean unit of General Motors if the U.S. automaker faithfully complies with due diligence.

The bank said Wednesday it is willing to extend short-term bridge loans to GM Korea up to an amount equivalent to its 17 percent stake in the company. The actual amount of the funding could change depending on future financial conditions. The financing will be secured by accounts receivable, or payment due to GM Korea by its customers.

KDB stressed it would lend only on the condition that the Detroit-based carmaker fully cooperates with due diligence. The state lender has been complaining that the company is withholding important materials. GM Korea’s bottom line has reportedly been hurt by excessively high fees charged by the headquarters on funding and parts supplies.

The due diligence study, which kicked off on Monday, is expected to take two months but could last longer. The first batch of funding may come in late April.

GM Korea has previously said that without new funding it would run into a liquidity crisis in the first quarter as nearly 2 trillion won ($1.88 billion) of its debt to the Detroit headquarters is due by the end of March.

GM officials have asked the Korean government to contribute to its $2.8 billion investment plan for the Korean unit over the next 10 years and to designate its plants as foreign investment zones eligible for tax breaks. Meanwhile KDB has pressed the U.S. company to confirm its allocation of new vehicle production to GM Korea.

GM shut down one of its four plants in Korea last month as part of its global initiative to downsize poor-performing operations.

“The government and KDB confirmed strong will from GM to keep business alive in Korea,” said Choi Jong-ku, chairman of the Financial Services Commission, Korea’s top financial policy regulator. “The government will contribute to the turnaround of GM Korea depending on how committed the U.S. company is to conduct long-term operations in Korea,” he added.

By Lee Seung-hoon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]