Why China’s Doublestar wants Kumho Tire so bad
[THE INVESTOR] The hurdles that China’s Qingdao Doublestar-led consortium had to go through over the past two years to finally attain a 45 percent stake in Kumho Tire were many.
To sum up, the union hated the Chinese tire maker, the original owner Kumho Asiana Group was fighting tooth-and-nail to get its goods back, there was a trademark dispute, and above all, a general sense of anxiety about the possibility of another “eat-and-run” situation.
Despite it all, the Chinese firm pulled through. Not only that, but the consortium will be buying the Kumho stake for around 30 percent lower than what it was initially willing to offer.
This is not just because Doublestar happens to be a tenacious company. There was a reason why the firm, and three state-owned companies with the backing of the local government of the eastern Chinese city of Qingdao, were so enthusiastic about the deal.
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For Doublestar and the other consortium members -- Qingdao Conson Development, Qingdao City Construction Investment and Qingdao Port International -- owning a controlling stake in Kumho means entering the top-tier car tire industry for just US$630. Doublestar ranks at about the world’s 30-largest, and among the top five in China. Its 2016 sales reached around 836 billion won, which is about one-third of Kumho’s 2.94 trillion won.
Doublestar’s strength lies in trucks and buses, but it has no real expertise in car tires, an area that Kumho has the lead. Expecting the tire industry to grow in tandem with the Chinese car market, the Beijing government has been stepping up investment. But because it’s a latecomer, there are no real prominent brands or those with quality technology.
So instead of a greenfield investment, Beijing decided to support a deal to attain a company that already has a global reputation, quality goods, and last but not least, a production facility in China.
Kumho currently operates three plants in China, including one in Nanjing. The others are in Tianjin and Changchun. Last year, the Korean tire maker completed a US$500 million project to relocate and upgrade separate passenger and truck tire plants to the Nanjing site.
The advantages for Doublestar are all pretty clear. However, it won't be an easy journey, given Kumho's financial situation and its willful union who are not without supporters due to lingering suspicions toward foreign investors.
Kumho's outstanding debt stands at around 2.4 trillion won. During the first nine months of this year, the company reported an operating loss of US$39.6 million. Sales stood at US$1.66 billion. The full-year figures have not yet been released.
By Kim Ji-hyun (firstname.lastname@example.org)