SsangYong to sign binding agreement with US firm

Main entrance gate of SsangYong Motor at its plant in Pyeongtaek, Gyeonggi Province, is seen in this file photo. Korea Times file

By Kim Yoo-chul

Months after Mahindra & Mahindra Managing Director Pawan Goenka confirmed his company's plan to give up control of its struggling Korean unit SsangYong Motor, the latter is very close to signing a binding investment agreement with U.S.-based vehicle distributor HAAH Automotive Holdings, sources said Monday.

“SsangYong Motor plans to sign an investment agreement with HAAH sometime this week, at the earliest,” a senior automotive industry source said. The planned agreement would likely be a “binding offer,” a deal where potential buyers usually hope to close an acquisition before the target entity goes into court receivership due to heavy liquidity issues.

The expectations pushed SsangYong shares to their daily high limit-up of 30 percent to end at 5,620 won per ordinary share on the KOSPI, according to the bourse operator, the Korea Exchange.

HAAH is partly owned by China's automobile company Chery, which has recently been aggressively seeking automotive assets globally. The agreement means the Chinese firm would become a stakeholder in the ailing Korean carmaker.

Mahindra, the largest shareholder of SsangYong earlier said it was planning to cut its shareholding in SsangYong to below 50 percent from the current 75 percent if it gets new investors.

The source said HAAH was planning to invest millions of dollars into Ssangyong. However, because SsangYong needs at least 550 billion won to normalize its operations, Chery will provide some of the required funds over a certain period of time. HAAH is unable to become the single largest shareholder in SsangYong because its annual sales were estimated at $20 million.

“Helped by the financial backing of Chery, HAAH will begin discussions with SsangYong investors as the investors are demanding Mahindra maintain at least a 51 percent shareholding in SsangYong for a loan rollover or extension,” the source added. As of the first half of this year, the total short-term debt SsangYong needs to repay is 306 billion won ― of this, JPMorgan, BNP Paribas, Bank of America Merrill Lynch and other foreign investment banks are owed 150 billion won.

“Korea Development Bank (KDB) Chairman Lee dong-gull will be very cooperative to make sure HAAH's investment actually happens as he has told investors many times that the state-run bank will do its utmost to prevent SsangYong from a complete failure,” another source said.

The intention behind HAAH's approach to SsangYong isn't clearly known, though some speculate that Chery was hoping to sell its vehicles via HAAH by taking advantage of the Korea-US FTA. The bilateral trade pact between Seoul and Washington was cited as the core consideration when Chinese vehicle manufacturer BYD made its move to acquire SsangYong Motor.

“Chery probably interprets HAAH's investment as a detour to expand its presence in the United States or other Western markets it has its eye on,” the second source added. HAAH is based in Irvine, Calif. Chery is planning to distribute Chinese vehicles in the North American market, specifically its Vantas SUV, by 2021.