[NEWS IN FOCUS] SsangYong Motor and its fight to stay afloat
Three bids have been cast for SsangYong Motor, though numerous variables make it still uncertain whether the beleaguered carmaker will actually find a new owner this time.
The names of the bidders were not disclosed, but local media reported that the three companies that finished their two-week due diligence — Ssangbangwool Group, KG Group and EL B&T — participated in the bidding. KG Group formed a consortium with Pavilion Private Equity to participate in the race.
EY Hanyoung, the lead manager of the deal, is expected to announce the preliminary buyer on Friday.
The bidding will take on a “stalking-horse” process, which is when a bid is arranged in advance to act as an effective reserve bid.
Under the stalking-horse bid process, SsangYong Motor can pick a preferred bidder based on the companies' bids. Then the other companies will be asked if they would be willing to pay a higher bidding price. If another company steps up, it gets SsangYong, and if not, the preferred bidder will be the final buyer.
SsangYong Motor plans to select a preferred bidder first and then initiate an open bid at the end of the month. It aims to sign the formal deal with the buyer in June and submit its rehabilitation plan to the Seoul Bankruptcy Court in August.
But that’s just the carmaker’s plan: It has until Oct. 15 to find a new owner or else the court declares the company bankrupt.
Analysts say there are concerns that the current situation will do nothing more than just repeat history.
Repetition of history
Analysts project more than 1 trillion won ($783 million) will be needed to acquire SsangYong Motor — around 400 billion won to 600 billion won for acquisition costs and around 800 billion won to proceed with the business.
The acquisition deal with a local consortium led by Edison Motors fell apart earlier in the year as the Korean electric bus manufacturer did not pay up.
Edison Motors had signed a contract to buy SsangYong Motor for 304.8 billion won early this year and paid 30.5 billion won as a down payment. It was supposed to pay the remaining 274.3 billion won by March 25.
“SsangYong Motor wasted one year as Edison Motors could not fork out the remaining sum,” said Kim Pil-soo, an automotive engineering professor at Daelim University. “The main issue here is that the companies who showed interest have 1 trillion won, which is the least amount of money needed to acquire SsangYong, and more importantly, whether they are actually serious about saving the automaker.”
“But the current situation is no different from the past as the two major candidates have no experience or expertise in the car manufacturing business,” Kim added. “It is possible that it repeats the past and SsangYong loses another chance, which really is the last opportunity for the carmaker.”
Market watchers believe the bidding war will become a one-on-one race between Ssangbangwool Group and KG Group. KG Group may be the most convincing buyer in terms of funding power at the moment.
Ssangbangwool Group initially said it would be able to raise 450 billion won from KB Securities and Eugene Investment. But KB Securities recently stepped back from the deal, making it unclear how the underwear maker will be able to raise the funds needed to acquire SsangYong.
Ssangbangwool Group is known for its Ssangbangwool underwear brand, which has been doing business since the 1950s. Ssangbangwool Group formed a consortium with local construction company KH Group and put Kanglim in charge. Kanglim, founded in 1979, is a fire and tanker truck manufacturer with a 12.4 percent share of Ssangbangwool.
Ssangbangwool also owns underwear brand Vivien, entertainment company IOK and electronics parts maker Nanos.
The revenues of seven listed companies in the group including Ssangbangwool and Kanglim totaled 632.1 billion won last year. Kanglim’s sales were 188.4 billion won, more than 30 percent of the group's total.
But 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.
KG Group is a chemical-to-steel conglomerate which has its foundation in Gyeonggi Chemical, Korea's first fertilizer manufacturer, which was established in 1954. Gyeonggi Chemical is now called KG Chemical and acts as the de facto holding company of the group.
KG Group said it will secure 500 billion won from selling its subsidiary KG ETS's environment and energy business part. KG Group formed a consortium with local private equity company Cactus Private Equity to acquire SsangYong and work together with its steel-making subsidiary KG Steel.
KG Group has 16 subsidiaries, with most of them in the green last year. KG Chemical generated 282 billion won of net profit in 2021, up 82 percent on year. Its revenue stood at 4.9 trillion won.
KG Steel reported 3.3 trillion won revenue while KG ETS made 3 trillion won.
SsangYong Motor is at risk of delisting, which is another big variable ahead of the sale.
Trading of SsangYong shares on the Kospi has been suspended after it filed for court receivership in December 2020 due to an impaired capital base. In Korea, court receivership is the last step before bankruptcy. The court assesses the company's possibility of being turned around based on its debt, assets and rehabilitation plan. If the court sees no hope, it declares the company bankrupt.
Its external auditor rejected its 2020 annual financial report, which put the automaker at risk of delisting.
The Korea Exchange gave a one-year grace period until April 14 this year to improve its business, but the carmaker failed to convince the exchange operator.
SsangYong Motor has requested the Korea Exchange extend its grace period, and the exchange operator has until May 17 to decide whether to give the company an additional one-year grace period or delist it.
“It is highly likely the Korea Exchange would delay the decision of the delisting as it is in the process of finding a new owner,” said Prof. Kim.
Some 4,300 employees work at SsangYong and, when considering suppliers, some 160,000 jobs are at stake.
Delisting does not have any legal influence on the acquisition process.
As of end the of 2020, a total of 48,381 retail investors held 37.98 million SsangYong shares, about 25.34 percent of the outstanding shares.
BY SARAH CHEA [email@example.com]