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.
SsangYong's heavy restructuring wooing potential investors
Seen above is the front gate of SsangYong Motor's manufacturing facility in Pyeongtaek, Gyeonggi Province, June 8. Yonhap
By Lee Min-hyung
Best-case scenario for SsangYong is to sign contract with HAAH
By Lee Min-hyung
SsangYong Motor's painful restructuring plan is raising the possibility that the ailing South Korean vehicle manufacturer may woo potential investors.
Early this month, its union and management reached an agreement to apply cost-cutting measures such as initiating unpaid leave and additional wage cuts for executive-level employees.
Industry source believe the company still leaves much to be desired before signing a merger & acquisition (M&A) contract with a potential investor, as SsangYong has yet to prove its potential for a visible rebound clearly amid deteriorating profits.
Korea Development Bank (KDB), the main creditor of SsangYong, remains negative in its view over the possible revival of SsangYong, but the state-run lender said now is not the time to consider a worst-case scenario, given that the carmaker is signaling its willingness to endure a painstaking restructuring process.
The recent announcement of the carmaker's cost-cutting measures is its response after KDB was intensifying its pressure on SsangYong to reshape its strategy before attracting investment from a potential buyer. The bank already said the carmaker should take additional actions and display a viable revival plan for investors.
“The self-rescue plan proposed by SsangYong's labor and management will be assessed by potential investors,” KDB's chief Lee Dong-gull told reporters during a recent press conference. “But the plan is not enough to attract capital from the viewpoint of prospective investors.”
SsangYong's workers accepted an “unpaid leave” program lasting two years starting at the beginning of July under the recent labor agreement with its management. This agreement came in response to KDB Chairman Lee Dong-gull's warning delivered earlier this year, when he urged SsangYong's union and management to “put an immediate end” to their internal discord at a critical time when it has to find a new investor to avoid bankruptcy.
“We regard the latest passage of SsangYong's self-rescue plan as a positive signal for the firm's possible revival, as it will help the company cut fixed costs,” a KDB official said. But what is of much more importance is its sustainable and viable plan for revival, according to him.
“KDB hopes the carmaker strikes an agreement with a responsible investor and presents specific plans for the firm's sustainable growth,” the KDB spokesman said.
Starting from June 28, SsangYong Motor plans to put up an official notice of its sale and accept letters of intent. SsangYong's plan is to start holding price negotiations with a preferred bidder sometime around the end of October.
The scenario, however, can be made possible only if a group of investors show “sincere” intention for taking over the carmaker before the timeline begins.
SsangYong was supposed to submit its rehabilitation plan by July 1. But it demanded the Seoul Bankruptcy Court delay the submission date for another two months, as the plan should include SsangYong's plans to attract capital from investors. The carmaker has so far failed to reach any contract with an investor, even if some companies have expressed interest.
The companies that have already shown their interest in taking over the carmaker include U.S. auto retailer HAAH Automotive and Korea-based electric bus manufacturer Edison Motors. SsangYong plans to unveil its first electric vehicle in Europe in the latter half of this year, and keep focusing on launching new vehicles to show its growth potential.
The best-case scenario is for SsangYong to sign a contract with HAAH, as the company -- which wants to use SsangYong as a back-channel to strengthen its U.S. business -- is cited as one of the candidates that is capable of spending big for the acquisition of SsangYong stakes.
Edison's sincerity, however, remains questionable due to its financing capability. Unnamed companies from the U.S. and China have said that they will also submit letters of intent for the deal, but details have not been confirmed as to how many potential investors are sincere enough to finalize a deal with SsangYong.
Until early this year, HAAH appeared closest to signing a deal with SsangYong, but it soon lost momentum after the two firms failed to narrow their differences on specific contract terms.
SsangYong started losing money in 2017. After the company reported a deficit of 281.9 billion won ($249 million) in 2019, it continued its losing streak the following year when its annual operating loss topped 440 billion won.