Korean court mediating deal between SsangYong & HAAH Automotive [Update]

Update: There are still hopes of saving SsangYong from going bankrupt, suggests a new report from The Korea Herald. Korea Development Bank may have refused additional loans, but it is under pressure to rescue the homegrown automaker from drowning. A company official has said that talks with potential investors are still on. A deal could be finalised shortly and be signed by the end of this month.

South Korea’s Financial Services Commission is concerned about the potentially massive layoffs in case SsangYong fails to secure its future. SsangYong has a staff of approximately 4,800 people, and subcontractors have employed around 1,00,000 people. Gyeonggi Province, where SsangYong manufactures vehicle, is also worried. Lee Jae-myung, its Governor, will provide some KRW 5 billion in special warranties for the company’s subcontractors.

Earlier this month, a report from Korea JoongAng Daily said that Korea Development Bank will not provide additional financial support to SsangYong until it sees a proper rehabilitation plan. “When a company’s accumulated loss amounts to more than one trillion won over the past ten years, it needs a viable business plan, not just an injection of fresh funds,” Choi Dae-hyun, Vice President, Korea Development Bank, said yesterday.

It is reported that HAAH Automotive offered to invest $250 million in SsangYong, but on the condition that KDB offers SsangYong a similar amount of financial support. No further negotiation with HAAH Automotive is scheduled now. Court receivership is where SsangYong would end up if it’s unable to secure fresh capital by the end of this month.

At the end of last month, a report from The Korea Times said that Mahindra paid off 30 billion won (approx. INR 196 crore) SsangYong Motor owed to Bank of America. “It is up to Mahindra whether it will demand SsangYong Motor pay back the 30 billion won, but it seems unlikely because it is trying to sell SsangYong Motor due to its accumulating losses,” a court official said, as per the report.

The Korea Times reported that the Seoul Bankruptcy Court is mediating a four-way discussion between SsangYong Motor, Mahindra, Korea Development Bank, and HAAH Automotive as part of an autonomous restructuring support programme, and hence a deal between SsangYong Motor and HAAH Automotive could still happen.

A report from The Economic Times on the first of last month said that Mahindra could announce the buyer of a chunk of its stake in SsangYong Motor within a few days. The company would sign a term sheet for sale, although that document wouldn’t mark the conclusion of a deal as per Dr. Pawan Goenka, MD & CEO, Mahindra & Mahindra, the report added. USA-based HAAH Automotive was expected to be the buyer. A few days later, a company spokesperson said that “the potential investor, largest creditor and SsangYong are still in dialogue.”

Mahindra intends to reduce its stake in SsangYong to 30% or lower with the deal, it was said. In December 2020, after failing to repay loans of approximately KRW 60 billion or INR 408 crore by the deadline (14 December 2020) to lenders, SsangYong filed for court receivership with the Seoul Bankruptcy Court. It has until 28 February 2021 to free itself of the crisis, and on failing to do so, the bankruptcy court would take over its management.

Ssangyong E100 electric SUV side teaser
Ssangyong’s first electric car, codenamed Ssangyong E100, is to launch in South Korea in the coming weeks. It is based on the body of the Korando. Image Source: SsangYong

In November 2020, The Economic Times had reported that Mahindra faced setbacks in concluding the stake sale and the revival of its South Korean company SsangYong. The company was desperately seeking funds to stay afloat, and it was unclear how it would manage in the interim for the working capital.

ET‘s sources had said that regulatory hurdles and valuation issues were hobbling the change of control at SsangYong, while valuation issues and financial terms primarily had stopped Mahindra and HAAH Automotive from making a deal. Though Mahindra was not able to agree to certain financial terms with HAAH Automotive, a source had told the newspaper in early November that negotiations are ongoing and that progress is being made. The person added that the deal is likely to see some kind of conclusion by December.

However, it had come to light that Mahindra wanted to exit completely while HAAH Automotive wanted to be part of it only as a strategic investor and that negotiations were getting harder by the day as the bankruptcy was looming large on the South Korean company. The report stated that Mahindra & SsangYong might resort to a one-time write-off of foreign investment, which could be met with regulatory hurdles, and that RBI may or may not grant exemption as it could set a precedent for other such cases.

The offer HAAH Automotive made for a part of Mahindra’s SsangYong stake was lower than SsangYong Motor is willing to accept, and this had prolonged the discussion. The company had also put up a condition of extending the repayment schedule SsangYong’s debt, it was reported before. HAAH Automotive had offered $258 million for a large stake in SsangYong, according to a report from economictimes.indiatimes.com dated 21 September 2020.

SsangYong is heavily burdened with debt and had reported over a dozen consecutive quarterly operating losses last year. Its SUVs Tivoli, Korando, and Rexton have found it hard to crack the global market. Outside the lone bright spot South Korea, the company has a low presence (exports in 2019 stood at 27,446 units) and it has not produced vehicles in the world’s biggest SUV markets USA and China though it had confirmed plans to enter these countries in a meaningful way.

After BYD & Geely, Chinese company Chery Automobile considered buying a stake in the debt-ridden South Korean automaker SsangYong, South Korean news outlet pulsenews.co.kr had reported on 23 July 2020. Chery had sent an agent for due diligence to SsangYong’s Pyeongtaek plant earlier the same month. The South Korean publication had said that the agent was a representative from a company in which Chery has made an investment and went for due diligence with Samsung Securities Co. and Rothschild & Co.’s managers. SsangYong had denied the claim, though.

On 14 September 2020, pulsenews.co.kr had reported that HAAH Automotive plans to make a major investment proposal to SsangYong. Investment banker sources had told the website that the California-based company was in final talks with the South Korean brand and that HAAH Automotive wants to begin the work necessary for commencing exports of SsangYong vehicles to North America.

HAAH Automotive is in the import distribution business and Chery partially owns it. The two companies created a new auto brand called ‘Vantas’ in February 2020. Together, they plan to launch models in the USA developed using the platform of Chery’s Exeed brand, and a premium SUV is first in the queue.

A report from economictimes.indiatimes.com in August 2020 had said that HAAH Automotive might have only a fraction of the capital SsangYong needs, but Chery would provide the required additional capital. Reports say that Chery wants to make South Korea an overseas manufacturing hub for EVs. The Chinese company is holding discussions with the country’s optical filter manufacturer Nanos to set up a jointly owned manufacturing facility for FCEVs at the Saemangeum Industrial Complex, the nation’s largest industrial complex, it was reported.

Display: SsangYong e-SIV concept official image