January 9, 2009 / 6:28 AM / 9 years ago

UPDATE 2-S.Korea's Ssangyong seeks bankruptcy protection

(Adds analysts, court, more background)

By Cheon Jong-woo

SEOUL, Jan 9 (Reuters) - South Korean automaker Ssangyong Motor Corp (003620.KS) said on Friday it was seeking a court receivership to avoid bankruptcy after a slump in car sales at home and abroad.

The decision came as global auto makers have suffered their worst business environment in recent memory, with demand plunging as the financial crisis spreads, squeezing credit and denting consumer confidence.

Ssangyong’s move may give top shareholder, China’s SAIC Motor Corp (600104.SS), an exit route from the South Korean company amid worries about overcapacity in the global auto industry, analysts in Seoul said.

If the court accepts Ssangyong’s filing, SAIC, which has a 51 percent stake in Ssangyong, will keep its stake but will have to relinquish control of the firm to the court.

“(Receivership) seems to be a way for SAIC to get out of Ssangyong. SAIC appears unwilling to invest further in Ssangyong as the global industry is facing an overcapacity problem amid slowing demand and it is not clear how much money would be necessary to revive Ssangyong,” said Song Sang-hoon, an auto analyst at Kyobo Securities.

But Ssangyong officials insisted SAIC would continue to play its role as the top shareholder and help Ssangyong revive.


In addition to court receivership, Ssangyong plans to take more measures such as cutting wages by up to 30 percent and accepting early retirement applications to revive its business.

Shares in Ssangyong were suspended before the announcement, having fallen 77 percent in the past year.

Ssangyong, like other carmakers worldwide, has cut production to cope with the worsening environment.

But it has been hit harder by the crisis than its peers, with its December sales down 53 percent compared with a 13 percent fall in the combined sales of the country’s five auto makers.

The maker of the Rexton sport utility vehicle (SUV) had feared liquidation after posting its fourth consecutive quarterly net loss.

SAIC injected $45 million into Ssangyong at the end of December last year, according to the South Korean company.

    But SAIC may seek to buy other car makers or brands instead of injecting more money into Ssangyong, some analysts said, as the recent industry downturn has forced major players such as the U.S. Big Three to sell assets.

    “There are better brands in the market now, which are waiting for new owners at attractive prices,” said Kang Sang-min, an analyst at Tong Yang Securities.

    Ford Motor Co (F.N) has put up Volvo up for sale, while General Motors Corp (GM.N) and Chrysler LLC are straining to survive a deep slowdown in U.S. car demand.


    Ssangyong had turned to the government and banks for help, but failed to drum up sufficient support.

    “Ssangyong decided to file for court receivership to deal with an urgent liquidity crisis and to transform itself into a company with sustainable growth,” the company said in a statement.

    The head of state-run Korea Development Bank (KDB), Ssangyong’s lead creditor, said on Monday it was prepared to help South Korea’s No.5 auto maker but only if it received fresh support from SAIC.

    The KDB declined to comment after Ssangyong’s announcement, saying the matter was now in the hands of the court. The Ministry of Knowledge Economy, which is in charge of the country’s auto industry, had no official comment. (Additional reporting by Rhee So-eui; Editing by Jonathan Hopfner and Lincoln Feast)

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