Ssangyong Motor Enters Court Receivership... Faint Hope for Sale Remains

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] Ssangyong Motor, which has been experiencing a liquidity crisis, has fallen into the turmoil of corporate rehabilitation proceedings (court receivership) again after 11 years. This is due to the impact of the novel coronavirus disease (COVID-19) and difficulties in finding a new owner. The only way out is to find a new owner, but the process is also expected to be challenging.

According to the legal community on the 21st, Ssangyong Motor resolved to apply for corporate rehabilitation proceedings through a board meeting held that morning. Later that afternoon, it filed for court receivership at the Seoul Rehabilitation Court. Accordingly, the court plans to issue property preservation orders and comprehensive injunctions in accordance with the procedures. Once the comprehensive injunction is issued, all claims will be frozen until the court decides to commence the receivership.

Along with this, Ssangyong Motor also simultaneously submitted an Application for Suspension of Rehabilitation Proceedings (ARS program). The ARS program is a system where the court confirms the creditors' intentions and can postpone the commencement of rehabilitation proceedings for up to three months.

Accordingly, Ssangyong Motor plans to be relieved from the burden of repaying loan principal and interest for the time being, reach an agreement on adjusting interests with creditors and major shareholders during the suspension period of the rehabilitation proceedings, and complete negotiations with investors currently underway to promptly apply to the court for withdrawal of the rehabilitation proceedings. Mahindra also stated that during the ARS period, as a major shareholder, it will take responsibility and actively cooperate in normalizing Ssangyong Motor’s management through early settlement of negotiations with stakeholders.

Ultimately, for Ssangyong Motor to recover, it needs to find a new major shareholder who can inject a large amount of new funds.

However, finding a new owner is not easy. Mahindra, which expressed its intention to give up its major shareholder status, has been negotiating the sale of Ssangyong Motor with the U.S. automobile distribution company HAAH Automotive. However, since Ssangyong Motor’s liquidity issues surfaced in April this year, no meaningful results have yet emerged. Moreover, as HAAH’s annual sales are reportedly only about 25 billion KRW, there are significant doubts about whether it can fulfill the role of a major shareholder.

Furthermore, if large-scale restructuring occurs during the court receivership process, Ssangyong Motor is likely to fall into even greater turmoil. After Shanghai Automotive acquired Ssangyong Motor in 2004, about 2,000 workers were laid off within five years. Additionally, through court receivership, about 2,600 employees had to leave the company.

An industry insider said, "For Ssangyong Motor to be sold, fixed costs must be reduced, and restructuring may occur in this process. However, if restructuring takes place, conflicts are inevitable."

The government is also closely monitoring Ssangyong Motor’s situation due to employment concerns. Although Ssangyong Motor has about 5,000 employees, related personnel including subcontractors number in the tens of thousands. Moreover, the ripple effects on the local economy amid the COVID-19 situation cannot be ignored.

This content was produced with the assistance of AI translation services.