Ssangyong Motor and Edison Motors Sign Memorandum of Understanding for Merger and Acquisition

Convincing Creditors for the Main Contract Remains a Challenge

[Image source=Yonhap News]

[Asia Economy Reporter Ki-min Lee] Ssangyong Motor, which is seeking a new owner, will sign a memorandum of understanding (MOU) for a merger and acquisition (M&A) with Edison Motors on the 2nd. Ssangyong Motor, which still has to finalize the main contract and submit a rehabilitation plan, faces the challenge of persuading creditors to graduate from the rehabilitation process.

On the same day, Ssangyong Motor will sign an MOU with Edison Motors for the M&A and conduct due diligence for two weeks. After Edison Motors completes its due diligence, Ssangyong Motor plans to submit the rehabilitation plan to the court around the end of this month when contract negotiations are finalized.

The rehabilitation plan will include the debt repayment plan, which outlines how Ssangyong Motor will generate profits from future business to repay the creditors, as well as issues related to changes in major shareholders.

To exit the rehabilitation process, Ssangyong Motor must convince creditors through the rehabilitation plan that the company can be normalized after acquisition. It is expected that about 255 billion KRW out of the 310 billion KRW to be injected through a third-party allotment capital increase will be used to repay rehabilitation secured claims. However, considering unpaid wages, public claims such as unpaid delivery payments after Ssangyong Motor’s rehabilitation process, and business operations, at least 1.5 trillion to 1.6 trillion KRW or more will be needed. Edison Motors also estimates that 1.5 trillion KRW is necessary, and Chairman Kang Young-kwon plans to inject 490 billion to 530 billion KRW through a second capital increase after acquisition and secure a loan of 700 billion to 800 billion KRW using Ssangyong Motor’s assets as collateral to normalize the company.

However, it is uncertain whether creditors will agree to Edison Motors’ plan. Currently, Ssangyong Motor’s liquidation value (982 billion KRW) is higher than its going concern value (620 billion KRW). During the 2009 rehabilitation process, Ssangyong Motor’s going concern value (1.3276 trillion KRW) was 389 billion KRW higher than its liquidation value (938.6 billion KRW), but the court approved the plan ex officio after creditors rejected the rehabilitation plan twice. Moreover, the main creditor bank, KDB Industrial Bank, has drawn a line on collateral loans, stating that it will prioritize reviewing the business plan.

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