Ssangyong Motor's 'P Plan': KDB Bank Cooperation and Supplier Strength Are Key

[Asia Economy Reporter Ki-min Lee] Ssangyong Motor has ultimately taken out the pre-packaged plan (P-plan) card after the major shareholder Mahindra withdrew from the sale negotiations. For Ssangyong Motor to successfully complete the P-plan and return to a normal track, cooperation from the main creditor bank, KDB Industrial Bank, as well as the financial health of Ssangyong Motor’s suppliers facing liquidity difficulties, are considered key variables.

According to the industry on the 29th, Ssangyong Motor entered the P-plan together with the U.S. automobile distributor HAAH after the breakdown of sale negotiations with Mahindra and HAAH. The P-plan is a restructuring method in which the court quickly reduces debt and the creditors inject new funds, making it faster than the usual corporate rehabilitation procedures. If a debtor submits a pre-packaged rehabilitation plan before the start of the rehabilitation process with the consent of creditors holding more than half of the debtor’s debt or creditors representing that amount, the court proceeds by reviewing and approving it. Ssangyong Motor has set a goal to complete the P-plan by the end of April this year.

[Image source=Yonhap News]

◆The 'Key' to P-plan Success Lies with KDB Industrial Bank

Industry insiders believe that for Ssangyong Motor’s P-plan to succeed, cooperation from KDB Industrial Bank, the main creditor, is essential, as much as collaboration with HAAH.

Even if Ssangyong Motor’s capital reduction proceeds through the P-plan, the $250 million (approximately 275 billion KRW) acquisition price prepared by HAAH is insufficient to resolve Ssangyong Motor’s debt and promote new investments. KDB Industrial Bank, which lent 180 billion KRW secured by the Pyeongtaek factory site out of Ssangyong Motor’s 1 trillion KRW debt, also needs to continue investing. It is known that HAAH also insists that KDB Industrial Bank should provide support corresponding to the acquisition price.

However, KDB Industrial Bank’s policy is to support only if Ssangyong Motor presents grounds for investment value and the labor union cooperates by maintaining no labor disputes and agreeing to a three-year collective agreement until profitability is achieved. Ssangyong Motor labor-management officials said, "Ssangyong Motor has maintained no labor disputes for 11 years, so accepting (KDB’s demands) is not difficult," and added, "Since the collective agreement is legally set for one year under labor relations law, we are seeking ways to coordinate this."

◆Government Announces Support Measures to Save Parts Suppliers... Parts Suppliers Say "Cash Support is Urgent"

The financial health of Ssangyong Motor’s parts suppliers is also critical. Ssangyong Motor must ensure that suppliers do not collapse so that vehicle production can continue after the P-plan and future plans such as new model launches can be pursued. Parts suppliers, who hold about 500 billion KRW in trade receivables from Ssangyong Motor, are facing difficulties due to Ssangyong Motor’s liquidity crisis. Ssangyong Motor has deferred payment of about 200 billion KRW in matured supplier notes as of this day and plans to pay half of the payments in cash after December. Ssangyong Motor’s cash mobilization capacity is so tight that it has deferred 50% of employees’ wages for January and February to pay suppliers.

To prevent a chain bankruptcy of Ssangyong Motor’s parts suppliers, the Ministry of Trade, Industry and Energy held the 26th Ministerial Meeting on Industrial Competitiveness Enhancement and decided to expand liquidity support such as maturity extensions and principal and interest repayment deferrals for Ssangyong Motor parts suppliers. First, support for maturity extensions and principal and interest repayment deferrals will be provided to suppliers through policy financial institutions and commercial banks. KDB Industrial Bank, IBK Industrial Bank, and Korea Credit Guarantee Fund will support the entire main industry (automobile, etc.) suppliers through currently operating support programs and consider securing additional limits if necessary. For national taxes, payment deadlines and suspension of seizure and sale will be extended upon application, and for customs duties, unsecured payment extensions and installment payment support will be maintained.

While some parts suppliers welcome the government’s policy, they say more cash support is needed. Since Ssangyong Motor’s crisis, their ability to mobilize funds has declined, and they currently pay cash to procure raw materials. Choi Byung-hoon, Senior Vice Chairman of the Ssangyong Motor Cooperative Emergency Committee, said, "The government’s policy may help somewhat, but it does not significantly differ from previous support policies," and pointed out, "Cash payment policies need to be expanded."

In particular, to prevent a domino effect of bankruptcies among parts suppliers, there are appeals that the cash flow between Ssangyong Motor and parts suppliers must be smooth. Vice Chairman Choi criticized, "The government or KDB Industrial Bank, the main creditor holding Ssangyong Motor’s land as collateral, should increase loan amounts and actively support so that cash flow continues."

Professor Lee Ho-geun of Daeduk College’s Department of Automotive Engineering said, "If Ssangyong Motor’s suppliers cannot sufficiently supply parts to multiple other automakers, such policies will only temporarily save suppliers," and added, "I think the way for suppliers to survive is for the government to actively support and devise plans for Ssangyong Motor’s short-term rehabilitation procedures as a big picture."

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