The Korea Development Bank is threatening to call back $103 million in loans to GM Daewoo Auto & Technology Co. unless General Motors Co. increases financial support of the Korean subsidiary and complies with specific management changes and other demands.

Min Euoo-sung, governor and CEO of the KDB, tells financial reporters in Seoul GMDAT has a rights offering of 162.7 million new common shares on the table available only to current shareholders.

He says the 3,019 won ($2.60) per-share valuation is much too low and should be about 8,000 won ($6.86).

Min also says the KDB is demanding GM transfer proprietary technology rights to GMDAT and allow a bank-appointed co-chief financial officer to operate as a senior executive of the company to ensure KDB interests are maintained.

Min alludes to 3.1 trillion won ($2.7 billion) in financial losses GMDAT incurred last year due to miscalculations in its foreign-exchange hedging. The hedging was aimed at protecting the rate at which revenue from sales of vehicles in the U.S., Europe and other markets are converted into Korean funds.

The KDB says GMDAT miscalculated the rate at just 950 won: $1 and that the exchange rate is 1,168 won: $1.

The bank previously has said GMDAT losses incurred through foreign-exchange hedging was 2.7 trillion won ($2.3 billion). The higher number was given in a report made to a Korean legislator, which he recently read at a public legislative meeting.

GMDAT is not commenting on the disparate disclosures. However, an informed observer tells Ward’s Min is “telegraphing KDB’s position for a meeting with GM's CEO Fritz Henderson, which is scheduled in Seoul next week. He is drawing a line in the sand.”

Henderson will travel to China this weekend, Ward’s learns, before arriving in Korea at mid-week to meet with KDB officials. He will be accompanied by Nick Reilly, GM executive vice president and president-GM International Operations.

Reilly also is chairman of GMDAT and was its CEO for four years following the subsidiary’s formation in 2002. Also participating will be new GMDAT President and CEO Michael Arcamone.

The GM officials will meet with Min; KDB President Dai Woo Han, who heads the corporate-banking function; as well as other KDB officials and GMDAT shareholders.

The source says Min is dissatisfied because he believes the common-stock rights offering will not inject enough fresh funding into GMDAT.

“If 100% of the offering is subscribed, it will put about 491 billion won ($421 million) into the company,” the informed observer notes. “(Min) thinks the price should be more than 8,000 won ($6.86) per share. Apparently he has some thought on the number of shares GM will purchase, although this has not been disclosed.”

The dilemma for the KDB is while it wants GM to invest in GMDAT, if the U.S. auto maker purchases more shares, and the bank does not, GM increases its equity while reducing the KDB’s stake.

“To maintain their current (28%) equity position, the KDB has to purchase more shares, the source says. “They see this as indirect funding of GMDAT.”

The rights offering price of $2.60 per share was arrived at through analysis of the current value of the company, and the offering has been approved by the GMDAT board of directors, he says, noting the KDB effectively has approved the per-share price as a representative of the bank sits on the board.

The 10-person board of directors also includes five GM directors: two from Shanghai Automotive Industry Corp. and one from Suzuki Motor Corp.

Among other issues likely to confront GM officials at their meeting in Korea next week is the KDB’s insistence of a guaranteed level of production in Korea, as well as advanced GM technology transferred to Korea and intellectual property rights of the technology and vehicle and production designs transferred to GMDAT.

“(The bank) wants to reopen the 2002 agreement (under which GM acquired a majority share in the primary Korean and Vietnamese assets of the former Daewoo Motors Co. Ltd.), and GMDAT has said ‘No’ to all of it,” the source says.

“So (the) KDB is now threatening not to roll over a large loan of more than $100 million that is due this month. It's part of their negotiation strategy.”

A GMDAT spokesman tells Ward’s negotiations are progressing. “We are making progress and hope that a decision by KDB will come out in October. We are aware of Min’s opinions, which he discussed today with the Korea news media.”

Ward’s is told Henderson will address the Korean media on his visit, but the auto maker has no comment on the negotiations.