Kumho Tire narrowly avoids bankruptcy, sold to Chinese firm

South Korean tyre company Kumho Tire has narrowly avoided bankruptcy following the approval of the company's takeover by China's Qingdao Doublestar. The Kumho labour union approved the US$ 607 million deal that will give 45% stake in South Korea's No. 2 tyre company to the Chinese counterpart.

Until Friday, the union was opposed to any sale / takeover by Doublestar due to worries over salary cuts and sharing of proprietary technology. Both the South Korean finance minister and a deputy prime minister had said that the company could fall and face bankruptcy in case there was a shortage of funds and the deal fell through. Further, Kumho's debts were due on April 2, 2018 with no way to repay them till the union's approval late on March 30, 2018.

Had the deal fallen through, it was most likely that company assets would be liquidated and sold to raise money to cover the debts. This could have caused loss of employment of almost all the workers and brought an economic downturn in Gwangju, Kumho's home region. The government-backed Korea Development Bank is leading the creditors and will sign the basic acquisition agreement with Doublestar.

As part of the deal, the workers have agreed to forfeit 25% of their bonuses for the period of 2017-19, and have the wages frozen for the same period. The company’s Gwangju and Goksung Plants will increase their productivity by 4.5% while the workers will get 40 days annual leave, with half of it unpaid and the rest with a 50% pay cut.

Source - Business Korea