SBG's acquisition plan for SsangYong still unclear

Industry

Published: 05 Apr. 2022, 14:58 Updated: 05 Apr. 2022, 19:14

SBG's acquisition plan for SsangYong still unclear

Ssangbangwool Group's headquarters located in Yongsan District, central Seoul [NEWS1]

Ssangbangwool Group (SBG) emerged as a white knight for financially troubled SsangYong Motor after its acquisition by Edison Motors fell apart.

Fire and tanker truck manufacturer Kanglim owns 12.4 percent of Ssangbangwool, a leading underwear maker, making it the largest shareholder.

But whether the group can raise the 1 trillion won needed to acquire SsangYong Motor and deal with its debt remains an open question. SBG, which has seven listed companies, said last week it is forming a consortium led by Kanglim to acquire SsangYong.

“The consortium will be formed by seven of our affiliates and we currently are not considering any outside company or financial investor joining the consortium,” said a spokeswoman for Ssangbangwool on Monday.

When asked about a rumor that KH Feelux, a Korean electronics parts maker, would join the consortium, the spokeswoman said the rumor was groundless.

“Kanglim will contribute the most in the consortium and we are planning on utilizing approximately 120 billion won we had prepared last year when we had bid to acquire Eastar Jet.”

SBG is known for its Ssangbangwool underwear brand, which has been doing business since 1950s.

Kanglim, founded in 1979, acquired a 24 percent stake in Ssangbangwool in 2014. Some of those shares were later sold.

Ssangbangwool also owns underwear brand Vivien, entertainment company IOK and electronics parts maker Nanos.

The revenues of seven companies in the group including Ssangbangwool and Kanglim totaled 632.1 billion won last year, considerably larger than Edison Motors. Kanglim’s sales were 188.4 billion won, more than 30 percent of the group's total.

Kanglim has been losing money for six consecutive years. Last year, its net loss came to 23 billion won. Ssangbangwool posted a net loss of 18.6 billion won last year.

“Looking at their assets, Kanglim and Ssangbangwool can finance approximately 300 billion won at most,” said an investment banking source.

“Coming up with the acquisition money might be possible, but whether it can pay down debt and invest in SsangYong’s R&D in the long-term remains highly questionable.”

SBG claims there can be synergies between Kanglim and SsangYong Motor.

“Costs and time for manufacturing special purpose vehicles by Kanglim can be saved when acquiring SsangYong Motor,” the spokeswoman said.

“And we are also co-developing an electric powertrain with U.S. startup Ridecell for these types of vehicles and we think this business can go well with SsangYong’s business in e-mobility.”

Edison Motors' attempt to buy SsangYong Motor for 300 billion won failed after the electric bus manufacturer did not pay up by last week's deadline.

Edison also faced a backlash from SsangYong's creditors and labor union when it said it was only willing to repay 1.75 percent of SsangYong's 547 billion won debt in cash. It proposed converting the rest to equity.

"This shows that 300 billion won was not enough," the investment banking industry source said. "At least 500 billion won is needed to acquire SsangYong to win approval from creditors, who want a higher debt payment ratio of around 40 to 50 percent."

SsangYong Motor has been in court receivership since last April when its largest shareholder Mahindra & Mahindra failed to find new investors. SsangYong Motor has been posting operating losses for 20 consecutive quarters.

It sold 84,496 vehicles last year, a 21.3 percent decline from the previous year.

“The financial capabilities of Ssangbangwool and Kanglim seem to be at least better than Edison Motors,” said Lee Ho-geun, an automotive engineering professor at Daeduk University.

“But they need to show in detail how they will resolve SsangYong’s debt and invest in the automaker's future because at this moment, SsangYong doesn’t have any capability to rise on its own. ”

If SsangYong Motor fails to find a new buyer by October, when the court receivership ends, the automaker may go bankrupt and be liquidated. Some 4,300 employees work at SsangYong and 160,000 jobs are at stake when considering suppliers.

“State funding is needed in order for SsangYong to avoid going bankrupt, but public opinion on injecting state money into ailing carmakers is highly negative,” said Professor Lee.

“The fate of SsangYong depends on the new administration. It might sound cruel, but for the new administration, now should seem like the perfect time to let go of SsangYong to avoid any possible blame later on."

Four companies including Ssangbangwool Group and local fire truck manufacture Enplus reportedly said they are interested in acquiring SsangYong after the deal with Edison Motors collapsed.

Enplus said in a regulatory filing Monday that it is "actively looking into the acquisition of SsangYong in order to raise Enplus' business competitiveness and corporate value."