Ssangyong Motor Co filed for bankruptcy protection in South Korea, ending SAIC Motor Corp’s four-year management of the first overseas automaker controlled by a Chinese company.
The carmaker faces a “serious liquidity crisis” after SAIC, the South Korean government and lenders failed to agree on a rescue plan, Pyeongtaek-based Ssangyong said in a statement on Friday. Two of its three most senior executives also left.
Ssangyong will cut salaries by as much as 30 per cent over the next two years in an effort to survive after sales of its sport-utility vehicles plunged amid the global recession. SAIC, whose parent paid $500 million for 49 per cent of Ssangyong in 2004, also faces waning demand in China, as the economic slowdown spreads into Asia.
“The main shareholder clearly thinks it won’t be easy to turn Ssangyong around, even if it injects additional funds,” said Park Hwa Jin, a Seoul-based analyst at Shinyoung Securities. “The key for the company’s recovery is the economy, but for now, everything is extremely unclear.” Park has a “neutral” rating on Ssangyong shares.
Choi Hyung Tak and Zhang Haitao, two of Ssangyong’s three co-representative directors, departed their posts. Choi quit for personal reasons, while Zhang is moving to another role as part of a SAIC reshuffle, Ssangyong said in an e-mailed statement, without elaboration. There was no mention about the future of the third co-representative, Lan Qingsong.
Ssangyong’s stock, down 77 per cent in the past year, was halted from trading.
The automaker applied for court protection at the Seoul Central District Court on Friday after a board meeting failed to produce a turnaround plan, it said. The company had previously held talks with the government, banks and other parties.
The court will decide within a month whether it will accept the protection application or will proceed with insolvency processes, spokesman judge Hong Jun Ho said by phone.
“The application for court receivership doesn’t mean SAIC’s withdrawal,” Choi Sang Jin, director of Ssangyong’s planning division, said by phone. “SAIC will continue its role as a main shareholder.”
SAIC, which now owns 51 per cent of Ssangyong, will lose control of the automaker under court receivership. The carmaker, China’s biggest, will work with Ssangyong on normalising operations, it said in an e-mailed statement on Friday.
SAIC’s stake in Ssangyong was valued at 1.85 billion yuan ($271 million) at the end of November under Chinese accounting standards, the Shanghai-based automaker said. The company is still assessing the financial impact of the Ssangyong receivership on its accounts, it added.
Ssangyong has posted four straight quarterly losses because of slumping demand for SUVs, which account for about half of revenue. The maker of Rexton SUVs and Chairman sedans posted a 30 per cent decline in vehicle sales last year.
The automaker needs 600 billion won ($451 million) of new financing to stay in business, according to Korea Development Bank, its biggest creditor. It needs to pay back 150 billion won of debt coming due in April. The company owes Korea Development Bank about 240 billion won, according to the state-run lender.
The bank said last year it might take steps toward liquidation rather than debt-restructuring if SAIC pulled out. Sung Joo Yung, a spokesman at the Seoul-based lender, said the bank will wait for court’s decision later without elaborating.
The bank is willing to provide working capital until the court approves a turnaround plan, Maeil Business Newspaper said on its website on Friday, citing an unidentified bank official.
Ssangyong’s 200 million euros ($273 million) of convertible bonds were trading with a mid-price of about 23 per cent of face value, with a yield of as much as 75 per cent, according to BNP Paribas prices.
The automaker will pay December salaries to its about 7,200 employees on Friday, it said. The automaker’s union earlier this week filed a complaint against three executives over the late pay. The union has also already held a ballot about possible strike action over restructuring plans.
Lee Chang Kun, a union spokesman, said he had no immediate comment.
