GM says talks with KDB on GM Daewoo 'constructive'

DETROIT, July 10 (Reuters) - General Motors Co remains in talks with the Korea Development Bank on providing new financing for GM Daewoo, a critical hub for GM's development and production of fuel-efficient small cars, a senior GM executive said on Friday.

"We're in talks with the Korean Development Bank regarding refinancing debt as well as bringing in some new financing," GM Chief Financial Officer Ray Young told Reuters Television.

"From what I understand the discussions have actually been quite constructive," he said.

State-run KDB helped finance GM's takeover of bankrupt Daewoo Motor in 2002 and still holds a 22 percent stake in the South Korea-based automaker, making it the second-largest shareholder behind GM.

Since February, when GM Daewoo exhausted a $2 billion credit line, GM's own financial difficulties and bankruptcy have complicated a refinancing for its subsidiary.

Young said talks between KDB and GM Daewoo were being led on the GM side by Nick Reilly, a Shanghai-based executive who was promoted to head all of GM's international operations on Friday as the parent company exited bankruptcy.

GM Daewoo is responsible for GM's small car design and engineering, making it an increasingly valuable part of GM's plans to sell more vehicles in emerging markets and meet aggressive fuel economy standards in the United States.

But GM Daewoo's results have been hit by the downturn for its parent company since the subsidiary sells almost 90 percent of its production outside South Korea branded as Chevrolets, Buicks and other GM nameplates.

Hyundai Motor Co (005380.KS) has been a beneficiary of the recent struggles by GM Daewoo, analysts have said. Hyundai, Korea's biggest automaker, also has been gaining market share in GM's home U.S. market.

KDB officials said in May that the bank was considering raising its stake in GM Daewoo, a step the automaker has said would be on the table for negotiation.

GM Daewoo accounts for about a quarter of GM's total auto production. South Korean officials have said they wanted to see a resolution of the parent company's restructuring before completing talks on new support for the subsidiary.

"GM Daewoo is a critical element of the new General Motors," Young said. "They are of strategic importance for us, not only in the Korean market but also in emerging markets around the world."

He added: "KDB understands that. They want to be very, very supportive in ensuring that (GM Daewoo) has a major role to play as part of the new General Motors."

Under GM's government-sponsored bankruptcy, the U.S. Treasury holds a more than 60 percent stake in the reorganized automaker. That makes the continuing discussions between GM and KDB negotiations between two state-funded enterprises. (Reporting by Kevin Krolicki)