Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Banks rushing to recoup loans from cash-strapped SsangYong Motor
Seen above is SsangYong Motor's car repair service center in Guro-gu, southwestern Seoul. The struggling carmaker sold the facility for 180 billion won on June 1 to secure emergency funds amid financial difficulty. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Korea Development Bank Chairman Lee Dong-gull
Banks are in a rush to recoup loans provided to SsangYong Motor, as the cash-strapped carmaker is teetering on the verge of collapse amid falling sales and growing setbacks in attracting new investors.
KB Kookmin Bank, one of the major lenders here, recovered loans worth 8.75 billion won ($7.38 million) recently from SsangYong. The bank is no longer a creditor of the carmaker after the repayment of the company's loans, the lender said Thursday.
“KB recovered the capital after SsangYong Motor disposed of collateral, a car repair facility in Guro-gu, southwestern Seoul,” a KB spokesman said. “We do not have any other loans offered to the carmaker.”
This is raising concerns that other creditors of the carmaker will take similar steps, which will push the company further into a corner when it is desperately in need of capital for survival.
KB Kookmin Bank CEO Hur Yin
On the domestic front, Korea Development Bank (KDB) offered loans worth 90 billion won to SsangYong, which come due at the end of this year. SsangYong was supposed to pay back the loans to the state-run lender and main creditor by the end of July, but this has been delayed to the end of 2020 after financial authorities advised lenders not to be in a rush to retrieve loans from struggling firms due to the COVID-19 pandemic.
Woori Bank, another local creditor of the carmaker, also decided to delay the maturity of its loans worth 15 billion won provided to the firm to the end of this year from the first quarter.
The recent disposal of the repair center is part of SsangYong's painstaking self-rescue measures at a critical time when the company is faced with its worst-ever crisis, while India's Mahindra & Mahindra is showing signs of giving up management control of the carmaker.
The Indian company holds a 74.6 percent stake in SsangYong Motor, but is taking steps to cut the ratio below 50 percent by attracting new investors. This is seen as a move for Mahindra to give up its management right to SsangYong on the judgment that the Korean unit of the Indian carmaker has little potential for growth amid its dwindling sales.
Pawan Goenka, Mahindra's managing director
The coronavirus pandemic, which also hit the automotive industry hard, has made Mahindra realign its business portfolio in a way to sell off unprofitable subsidiaries. Mahindra has reiterated its position during a recent conference call that its board of directors will not make additional investments into SsangYong Motor.
In July, SsangYong Motor sold 7,498 cars, down by 30.6 percent from a year ago. The company also reported a two-digit decline in its car sales for the first seven months combined this year. The firm reported domestic and overseas car sales of 47,557 and 9,351, respectively, during the same period, down by 26.4 and 43 percent.
Overseas lenders may follow suit
Concerns are surfacing that overseas financial institutions that injected capital into the carmaker will follow the moves of KB Kookmin Bank.
As of the end of the first quarter, SsangYong Motor has 389.9 billion won in short-term debt which should be paid off to financial institutions here and abroad in less than a year.
But overseas lenders are likely to press the carmaker to pay the debt immediately in the case that Mahindra ends up giving up its position as the majority shareholder. This is because the loans were provided to SsangYong under the condition that Mahindra continues to take management control of SsangYong by obtaining a 51 percent stake or greater in the Korean unit.
For now, overseas lenders are not rushing to step up pressure on SsangYong over the early repayment of the debt. But the concern will likely turn to reality soon amid Mahindra's challenges finding new investors due to SsangYong's dismal sales outlook.
SsangYong is rumored to be planning to seek court receivership at the end of August due to pressure from creditors. The carmaker denied the rumors, saying that KDB, the main creditor, has not notified the company of any such move.
But the state-run lender remains pessimistic over providing any additional financial support to the carmaker. The main creditor said labor and management of the company “are not making utmost efforts” to salvage the struggling carmaker.
KDB Chairman Lee Dong-gull said in a recent press conference that “money alone cannot salvage a company,” pressing its major shareholder to take more concerted efforts for SsangYong's survival.
SsangYong Motor is in a position to continue its self-rescue drive by selling its non-core assets, such as its human resource development institutes or logistics centers.