KDB's capability of salvaging financially troubled firms called into question

The logo of the Korea Development Bank (KDB) is seen in front of its headquarters in Yeouido, Seoul. Korea Times file

By Yi Whan-woo

The botched sale of SsangYong Motor is calling into question the capability of its main creditor, the Korea Development Bank (KDB), in salvaging financially troubled companies.

SsangYong Motor joins Daewoo Shipbuilding & Marine Engineering (DSME), also under KDB control, in remaining unsuccessful at finding new owners during the Moon Jae-in administration.

Industry sources speculated on Tuesday that such circumstances faced by the state-run KDB may leave an unfavorable impression on the incoming Yoon Suk-yeol administration.

They noted that public funds will have to be injected to maintain the two businesses, after massive amounts have already been spent.

The new government, on the other hand, is already burdened with a record-high national debt that could reach up to 1,064 trillion won ($872.5 billion) by the end of this year, following a series of relief programs initiated by the current administration against the economic fallout due to the pandemic.

The sale of SsangYong Motor collapsed, Monday, after the much smaller carmaker Edison Motor, which had been chosen to buy it for 304.8 billion won, failed to make part of the payments by a deadline on March 25.

The planned takeover of DSME by Hyundai Heavy Industries (HHH) was called off in January, when the EU rejected the $1.8 billion acquisition deal between the world's two largest shipbuilders.

The deal required the EU's consent but it raised an objection over the possibility of a monopoly regarding liquefied natural gas (LNG) carriers.

“KDB for some reason was believed to be too optimistic about the DSME deal, even though it had dragged on for years,” a senior unionist at DSME said on condition of anonymity.

The union official pointed out that the EU had been postponing its decision repeatedly on whether to support the deal, after a relevant agreement was signed between KDB and HHI in March 2019.

“It was apparent that the longer the deal took, the more taxpayer money would be used,” he said.

In the case of SsangYong Motor, KDB put the company up for sale in June 2021 after Indian carmaker Mahindra & Mahindra gave up its rights as a controlling stakeholder in January of the same year.

“There are multiple companies that undergo corporate restructuring by KDB, and the process is very complex for it to resolve on its own,” Korea Capital Market Institute research fellow Hwang Sei-woon said.

Against this backdrop, some market observers are pessimistic that KDB Chairman Lee Dong-gull will be able to serve until the end of his term in 2023.

Lee has been outspoken against Yoon's pledge to relocate KDB outside of Seoul, raising speculation that Yoon may attempt to find a new KDB chief despite Lee's remaining tenure.

Meanwhile, KDB said Tuesday that it “will closely monitor the situation regarding SsangYong Motor.”