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Doublestar's Kumho Tire deal drifts off course

Brand usage fee, opposition party put brakes on Chinese tire maker's plan

Chinese tire maker Qingdao Doublestar is struggling to complete its ambitious 955 billion won ($845.1 million) deal to buy a 42% controlling stake in ailing South Korean peer Kumho Tire, as both sides play a tug of war over the price of the Kumho brand after the acquisition.

Creditors of Kumho Tire said Monday that Doublestar disagreed with parent company Kumho Asiana Group's suggestion that the Chinese company should pay 0.5% of sales to use the brand for 20 years, sticking to its initial proposal of paying 0.2% of sales."Doublestar said it is impossible to accept Kumho's suggestion," said a spokesman at state-run Korea Development Bank, which leads the group of creditors of the troubled tire maker. KDB said creditors agreed that completion of the deal should be the top priority, pressuring Kumho to follow the previous condition suggested by Doublestar.

However, the parent company insisted that its suggestion of 0.5% of sales was an average level for the industry. "Currently, Kumho Tire's overseas subsidiaries, including China, pay 1% of sales for the use of the brand. Our key competitor also charges 0.4% for domestic affiliates and 1% for offshore subsidiaries for the brand fee," said Kumho Industrial, the holding company of the group, in a statement.

Analysts said that conflicts between creditors of Kumho Tire and the parent company were having a negative effect on the tire maker.

"At this moment, we worry that discord between creditors and Kumho Asiana Group will raise liquidity pressure [on Kumho Tire]," said Kim Hyun, a senior analyst at Korea Ratings. "We are strengthening our monitoring on poor performance in [Kumho's] Chinese entity, reviewing whether it is a fundamental problem or not."

Kim said that profits in Kumho Tire's Chinese arm had declined due to low demand from South Korean automakers, who have in turn been hit by lingering boycotts and retaliations in China over deployment of a U.S. anti-missile defense system in South Korea. As of March, Kumho Tire's Chinese unit's loans reached 500 billion won ($441 million), including 290 billion won from Chinese lenders.

Even if Doublestar resolves the brand usage fee issue with Kumho Asiana, there are more hurdles the company needs to clear before the deal is complete. South Korea's minor opposition People's Party is one of them.

The party has pressured President Moon Jae-in to intervene in the deal, raising the fear that the Chinese company might close production lines in the southwestern city of Gwangju and in Jeolla province, the party's key support bases.

"If the global tire maker Kumho Tire is sold to a Chinese company, it is clear that it would cause tremendous bad impacts on the economy of Gwangju and South Jeolla Province," said Kim Yoo-jung, the party's spokeswoman, in a statement.

Shares of Kumho Tire inched up 0.27% to 7,530 won on Monday, after hitting a one-year low of 6,960 won on May 26. The benchmark Kospi dropped 1% to 2,357.87, after reaching an all-time high of 2,381.69 on Friday.