[Inside Chodong] Premature Intent to Acquire Ssangyong Motor... Fueled Market Turmoil

[Asia Economy Reporter Hyungsoo Park] Ssangyong Motor, which recorded an operating loss of over 260 billion KRW last year, is being treated as a "golden goose" in the domestic stock market. The Edison Motors consortium, initially selected as the preferred bidder, failed to pay the remaining balance by the deadline, putting Ssangyong Motor back on the market. The Ssangbangwool Group expressed its intention to acquire the company through its affiliate Gwanglim. Gwanglim's stock price surged more than 100% in just four days. Not only Gwanglim, but also the stocks of Ssangbangwool and Nanos, other group affiliates, soared simultaneously.

Following Ssangbangwool Group, KG Group also stated in a disclosure response that "we are reviewing the acquisition of Ssangyong Motor as part of our efforts to strengthen business competitiveness by exploring entry into various fields." The stock prices of KG Chemical, KG Steel, KG Mobilians, and KG Inicis fluctuated. Just the news of KG Group considering the acquisition of Ssangyong Motor increased KG Steel's market capitalization by about 500 billion KRW.

Whether Ssangbangwool Group or KG Group will ultimately acquire Ssangyong Motor cannot be predicted at this stage. Regardless of the possibility of financing, the judgment of the Seoul Bankruptcy Court is crucial. Simply announcing that they are reviewing the acquisition or have the intention to acquire caused the stock prices of about ten listed companies to surge.

Ssangyong Motor has a precedent where foreign companies such as Shanghai Automotive from China and Mahindra from India acquired it but eventually gave up. It recorded operating losses of 281.9 billion KRW in 2019, 449.4 billion KRW in 2020, and 261.3 billion KRW in 2021. It also has debts of about 1.5 trillion KRW, including rehabilitation claims and secured rehabilitation claims of 835.2 billion KRW and public interest claims of 779.3 billion KRW. Even if acquired and all efforts are devoted to the group's survival, recovery is not guaranteed.

Acquiring Ssangyong Motor poses problems, but even if a bidder is eliminated, stock price volatility is expected to increase. Edison EV, a KOSDAQ-listed company that was expected to be the financing channel for the Edison Motors consortium, has had its stock trading suspended since the 30th of last month.

As noise arose regarding the acquisition process, the stock price fell about 70% from its peak on January 12. The supervisory authorities are investigating Edison EV for possible unfair trading practices after its stock price rose nearly tenfold over ten trading days from October 28 to November 12 last year. According to the business report, Edison EV has over 100,000 minority shareholders, and its market capitalization before the trading suspension reached 330 billion KRW.

Ssangbangwool Group and KG Group quickly disclosed the news of "reviewing the acquisition of Ssangyong Motor" to enhance management transparency and resolve information asymmetry issues. In the past, Hanmi Pharmaceutical caused innocent victims by announcing contract termination news late. Since then, it has been regarded as a virtue in the domestic stock market for listed companies to inform the market of important management situations as soon as possible. However, this time, there is some regret that the announcement might have been too early.

The working-level staff had not properly reviewed the expected effects in terms of synergy with existing businesses or business diversification, but once the news was disclosed, confusion increased.

Since the acquisition is not decided on a first-come, first-served basis, the sequence of announcing first and then managing the situation continues. With individual investors’ "blind investments" added, stock prices are fluctuating wildly without a concrete blueprint. This is a management decision requiring an investment of over 1 trillion KRW, but expressing the top decision-maker’s intention without a post-acquisition blueprint is difficult to avoid criticism for being premature.

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