Input 2020.12.21 17:56 | Revision 2020.12.21 18:06
As Ssangyong Motors applied for corporate rehabilitation procedures (legal management) to the court on the 21st, attention was drawn to what kind of path the company will take in the future. Ssangyong Motor is looking for new investors, but it is analyzed that a large-scale restructuring is inevitable as the situation is not easy due to circumstances such as serious business difficulties.
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Ssangyong Motor announced that it had held the board of directors on the same day, decided to apply for rehabilitation procedures, and applied for court management to the Seoul Rehabilitation Court. Legal management is a system that helps companies recover by canceling part of their debts, and Ssangyong Motor has applied for court management again after 11 years since January 2009.
On this day, Ssangyong Motor also received an application for withholding the start of rehabilitation procedures (ARS program). The ARS program is a system in which the initiation of rehabilitation procedures is delayed for up to three months after the court confirms the intentions of the creditors. During the rehabilitation process withholding period, if the stakeholders agree and withdraw the request for rehabilitation procedures, the company can return to a normal company.
Accordingly, it is expected that Ssangyong Motor will be free from the burden of repayment of loan principals, etc. for the time being, and adjust its interests with creditors and major shareholders during the pending period of the start of the rehabilitation procedure. In addition, the goal is to close the negotiations with investors in progress and drop the court management application filed with the court. However, the industry estimates that while the KDB, the main creditor, demands the responsible attitude of Mahindra, the largest shareholder, the possibility of an agreement is not high as Mahindra is consistent with a passive attitude.
The direct reason for Ssangyong Motor’s filing for legal management is that it has overdue the principal and interest of loans worth 60 billion won to foreign financial institutions. The expiration date for a loan of 90 billion won, which was once extended by the Korea Development Bank, was also on this day. The maturity date for a 15 billion won loan from Woori Bank will also return within this month. Until now, Ssangyong Motor has been in a position to discuss maturity extensions with financial institutions, but in the end, it could not find an agreement.
Ssangyong Motor is struggling with management difficulties, recording a deficit for 15 consecutive quarters. India’s largest shareholder, Mahindra, has withdrawn the investment promised, and when a new investor appears, the stake is lowered to less than 50%. Accordingly, Ssangyong Motor has recently financed emergency funds through the sale of non-core assets such as the Guro Service Center and the Busan Logistics Center site.
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Ssangyong Motor will continue to search for a new owner with the request for court management, but the situation is not easy. It’s been nearly a year since Mahindra, the largest shareholder, notified “Find a new investor,” but there is no one willing to take over a company that is experiencing serious business difficulties. First of all, it is reported that HAAH Automotive Holdings of the United States has negotiated an acquisition with Mahindra and even made due diligence, but no concrete results are coming out. HAAH is an American automobile distributor owned by Cherry Motors of China.
Some point out that even if HAAH actually takes over Ssangyong Motor, it is questionable how much it will mobilize funds. HAAH is a startup established in 2014 and did not post any data on its website to reveal its performance and financial situation. However, according to US corporate information and data companies, HAAH’s sales last year amounted to 20 million dollars (about 23 billion won). Earlier this year, the amount of funds that Mahindra said is necessary for the normalization of Ssangyong Motor reached 500 billion won for three years.
China’s Geely, BYD, and battery maker CATL are also known to have been interested in Ssangyong, but so far, there has been little movement. The industry view is that automakers will not be able to easily make investment decisions because the world’s automakers are putting their top priority on securing liquidity due to Corona 19. If Ssangyong Motor, which is difficult to overcome the current situation without external investment, fails to find a new investor, the future will inevitably become more uncertain.
◇Submit resignation of all Ssangyong Motor executives
If the request for rehabilitation procedures is not withdrawn within the three-month period withholding the commencement of rehabilitation procedures, the court judges whether the company’s’rehabilitation’ value is high or the’liquidation’ value is high. The rehabilitation process tends to save the company as much as possible, but the possibility of large-scale restructuring cannot be ruled out as companies also have to come up with specific rehabilitation plans.
In the worst case, the court can bring bankruptcy. If the court determines that the liquidation value is higher than the effort to revitalize the company, the court will declare bankruptcy. Bankruptcy cannot be avoided even if the rehabilitation plan submitted by the enterprise is not approved.
An official from Ssangyong Motor said, “All executives submitted collective resignations through an emergency meeting. We will do our best to transform into a more robust and competitive company.”
On the other hand, if Ssangyong Motors enters the rehabilitation process, the damage to the parts partners is expected to be significant. Accordingly, the government decided to operate a support program such as extending the maturity of loans to alleviate the shock of parts suppliers.
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