Korea Development Bank in dilemma over SsangYong's failed efforts for investment

By Lee Min-hyung

With SsangYong Motor failing to attract timely investment from U.S. car retailer HAAH Automotive, creditors of the ailing firm ― led by Korea Development Bank (KDB) ― are in a growing dilemma over the handling of the cash-strapped automaker on the verge of starting a court-led restructuring.

Earlier, Seoul Bankruptcy Court asked SsangYong to submit a letter of intent or any forms of provisional contracts surrounding investment from HAAH. The court set the deadline at March 31, but SsangYong failed to provide any legal documents proving that it was close to signing a deal with the investor.

The court will take corresponding steps by initiating a restructuring process for SsangYong as early as the first week of April under the judgment that negotiations between the automaker and HAAH ended in failure.

The court asked KDB to provide its stance and opinion by Apr. 6 over the beginning of the court-led restructuring of SsangYong. Under the planned move by the court, SsangYong will submit a specific plan for rehabilitation. If the creditors approve the plan, the court-led restructuring processes will begin.

But if the creditors do not approve the plan, the court will mediate details between the creditor group and SsangYong. Chances are the automaker may have to declare bankruptcy if the mediation hits a dead end.

The best-case scenario for SsangYong's revival is to find another potential investor and draw financial support from that source as well as the creditors. But it remains unclear whether this can turn into reality as the automaker does not appear to be attractive enough for investors amid its falling sales and weakening market competitiveness. Few companies have so far expressed “sincere” interest in investing in the automaker.

On top of that, SsangYong can initiate a new negotiation with other investors only after the discussion with HAAH comes to a complete end. According to SsangYong, HAAH has yet to withdraw its interest in investment, and talks are still underway between the two sides.

KDB is taking a wait-and-see attitude without making additional investments into SsangYong.

“Our stance remains firm that we cannot provide any financial support for SsangYong unless a new investor confirms its plan for investment in the automaker,” a KDB official said.

But the court-led restructuring also comes as a burden for the state-run lender, as SsangYong may be forced to carry out a drastic labor force reduction and a group of the automaker's parts suppliers will go bankrupt under the typical court-led restructuring process.

Financial regulators also do not want such a scenario to become a reality at a time when the economy is still suffering from the effects of the coronavirus pandemic.

Financial Services Commission Chairman (FSC) Eun Sung-soo said it would take appropriate steps under negotiation with the KDB.

“The FSC and the KDB have discussed what practical measures each side should take over the issue, and we will fulfill our role in accordance with the result,” Eun told reporters last week, declining to comment further.