SEOUL -- South Korea's Hankook Tire remains in talks with Slovakia on a 500 million euro ($601.6 million) factory, a company source said on Thursday, after the Slovak government rejected a proposed incentive package for the plant.
Hankook in May chose Slovakia as the preferred location for its production and distribution centre in Europe.
But on Wednesday Slovakia Finance Minister Ivan Miklos said the cabinet rejected a proposed incentive package of up to 21 percent of total investment put forward by the economy ministry, because it demanded too much funding from the state budget.
The deal is being closely followed by foreign exchange markets, because the inflow of foreign direct investment has helped fuel the rise of the Slovakian crown over the past few years.
"Slovakia has not formally notified us of it. The talks are still underway," a company source told Reuters by telephone.
"But I believe that the company probably started discussing the next steps internally. I can't say for sure what that would be for now," the source said.
Roman Kuruc, head of government foreign investment agency SARIO, said on Wednesday the government decision meant that Hankook would change its mind and locate the factory in another central European country, possibly Hungary or Poland.
The Hankook plant was to be the third-largest foreign investment project in Slovakia, which has a thriving automotive industry, the backbone of its economy, as firms are drawn by low wages, a skilled workforce, proximity to western and eastern markets and favourable taxes.
Kia Motors Corp., South Korea's second-largest carmaker, started construction last year of a 1 billion euro factory in northern Slovakia, and French auto maker PSA Peugeot Citroen is building a 700 million euro assembly plant near Bratislava.
German car producer Volkswagen has been operating a plant in the country for more than 10 years.