South Korea’s cash-strapped Kumho Tire Co. has avoided the worst-case scenario of heading to bankruptcy court and China’s Doublestar Tyre is finally cleared to own its bigger Korean rival on a second attempt.

Kumho Tire labor union said on Sunday that 2,741 unionized workers of the country’s second-largest tire manufacturer cast the ballot, and 60.6 percent of them voted in favor of a plan to sell the company to Doublestar Tyre. It said 38.4 percent turned down the plan.

The vote was held after Kumho Tire labor union on Friday agreed with management on the company’s normalization plan by accepting the creditors’ demand to put Doublestar Tyre’s takeover plan to a vote, just three hours before the company’s creditors’ voluntary agreement ended. The agreement was reached during an emergency meeting among the company’s management, labor union, and government and creditor officials.

“We have mutually agreed on the business normalization plan and injection of capital from China’s Doublestar Tyre,” the management and labor union said in a statement on Friday after the four-hour-long meeting. They planned to submit the agreed terms to creditors led by state-run Korea Development Bank (KDB) after the union vote.

With the latest vote result, Kumho Tire has avoided the worst-case scenario of heading to court receivership, which has been widely anticipated to lead the company toward liquidation. KDB Chairman Lee Dong-gull last Monday proposed Kumho Tire put the company sale plan to a vote by all employees as an ultimatum for the indebted company to stay afloat.

The creditors remained firm to end the moratorium on debt obligation on Friday and pressured the labor union that if it does not agree on the reorganization plan, the company would have no choice but to head to bankruptcy court as it would have no funds to pay 27 billion won ($25.4 million) worth of commercial paper due on April 2 and 40 billion won worth of corporate bonds on April 5. Kumho Tire suffering from severe financial drought has not been able to pay salaries to employees for the last three months.

The labor union’s vote also has finally allowed Doublestar Tyre to take over the Korean company on its second attempt. The Chinese tire maker was given exclusive rights to acquire a 42.1 percent stake in the financially-troubled company from the creditors at 955 billion won in May last year, but the deal fell through four months later after Doublestar Tyre reduced the offer price to 800 billion won citing deteriorated income statement of Kumho Tire.

Kumho Tire creditors failing to find other options to rescue the indebted Korean tire maker since then once again has had a chance to seek help from Doublestar Tyre. But the creditors’ plan to tap capital from the Chinese tire maker soon faced stiff opposition from the labor union that feared of massive layoff and technology leakage, delaying the implementation of the management and creditors’ business normalization plan.

But Kumho Tire’s unionized workers were believed to have changed their stance on Friday after realizing their company would be soon put in the hands of the bankruptcy court without the immediate fund injection from the foreign rival amid mounting pressure from the creditors and the government.

Following the vote result, Kumho Tire creditors and Doublestar Tyre are expected to sign a final agreement on the investment that involves the Chinese truck and bus tire maker investing 646.3 billion won in Kumho Tire’s new shares through third-party allocation, becoming the biggest shareholder with a stake of 45 percent, under terms announced by KDB in March.

Doublestar Tyre will make a down payment of 32.3 billion won while creditors will inject additional 200 billion won in fresh capital as facilities fund.

KDB expected that new capital from Doublestar Tyre will help debt-laden Kumho Tire improve performance of its Chinese entity that initially triggered the company’s insolvency. Kumho Tire, a leading passenger car tire maker, and Doublestar Tyre, China’s third-largest truck and bus tire maker, are expected to create synergy, KDB also noted, particularly in China where Doublestar Tyre manages 4,500 sales networks.

In a separate move, Kumho Tire management and labor union and its creditors are expected to put out respective efforts to normalize business. KDB and the labor union are expected to create a joint future committee to establish management normalization and long-term development plans, and implement the self-rescue plans as agreed by KDB and the labor union in a closed-door meeting last week.

By Kim Jung-hwan and Lee Eun-joo

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