Requests KDB to Lend Money Required for Capital Increase
SsangYong Motor is seeking to attract US$250 million in investment from U.S. auto retailer HAAH Automotive.
SsangYong Motor and HAAH Automotive will sign an investment agreement in early February at the earliest and submit a pre-packaged bankruptcy plan (P-Plan) to the court.
A prepackaged bankruptcy is a plan for financial reorganization that a company prepares in cooperation with its creditors. It is designed to shorten and simplify the bankruptcy process in order to save the company money in legal and accounting fees and the amount of time spent in bankruptcy protection.
SsangYong’s P-Plan will include lowering Mahindra & Mahindra’s current 75 percent stake in the troubled Korean automaker through a capital decrease. This is designed to allow HAAH Automotive to become the largest shareholder with a 51 percent stake by participating in a capital increase of US$250 million.
However, SsangYong Motor and HAAH Automotive have to clear some hurdles before submitting the P-Plan to the court. According to the Debtor Rehabilitation and Bankruptcy Act, SsangYong Motor needs the consent of creditors holding more than half of its debts to start the P-Plan. SsangYong Motor's debts currently amount to one trillion won with 60 percent of them belonging to commercial creditors and 20 percent to KDB and foreign financial institutions. Foreign banks are likely to oppose a capital decrease because they lent money to Mahindra & Mahindra on the condition that the Indian company maintain a 51 or higher stake in SsangYong Motor.
Even if HAAH Automotive acquires SsangYong Motor, the automaker will need support from KDB and others in order to normalize the automaker’s operations. HAAH reportedly requested KDB to provide funds for a capital increase. KDB is in the position that it can give support to SsangYong Motor only if the company's labor union accepts two conditions proposed by KDB chairman Lee Dong-gull -- promising not to stage a strike before switching to a surplus and extending the effective period of collective bargaining agreements to three years.
The government held a meeting of ministers to discuss liquidity support measures for SsangYong Motor, including extending the maturity of loans to the automaker’s partners, putting off the repayment of principal and interest, and the supply of new funds.
SsangYong Motor announced that it posted 423.5 billion won in operating loss in 2020. The deficit climbed amid a sharp drop in exports due to the COVID-19 pandemic and production disruptions stemming from partners’ suspension of parts supply. The troubled automaker’s total capital was minus 62.2 billion won with a capital impairment rate of 108.3 percent in 2020.