Ssangyong Motor Creditors Revisit Sale

SEOUL, March 29, 2004; Jean Yoon writing for Reuters reported that creditors of South Korea's Ssangyong Motor Co (KSE:003620.KS - News) could take months to rethink the sale of the carmaker after an initial deal with a Chinese firm fell apart, bank officials and analysts said on Monday.

Creditors are not expected to rush into a fresh deal, fearing their ability to extract a high price has weakened considerably after preferred bidder Blue Star failed to agree on a price.

The South Korean car maker has a market value of $1 billion, but is wallowing in 1.32 trillion won ($1.14 billion) of debt. Its net profit jumped 84 percent last year to 589.6 billion won on cost cutting measures and robust sales.

South Korean media had reported Blue Star was due to pay $600 million to $700 million for 50 percent of Ssangyong Motor, a stake currently valued at about $500 million.

"Creditors are likely to take their time -- maybe until the end of this year -- to reconsider their plans for Ssangyong Motor," said Chae Kyoung-sup, an auto analyst at Shinyoung Securities. "The last thing they want is a repeat of what had happened to Daewoo Motor."

In 2002, General Motors Corp, the world's biggest carmaker, bought cash-strapped Daewoo Motor for $251 million, which analysts called a "giveaway" price after Ford Motor scuttled an earlier bid to take over Daewoo.

Another deal considered something of a fire sale was Samsung Motor Inc., which was sold to French auto maker Renault SA for 615 billion won ($531 million) in 2000.

"We are going to have some breathing space to rethink the whole sales plan," said an official at Ssangyong's main creditor Chohung Bank. "We are in no rush and we don't want to be blamed for selling the carmaker too cheap."

Ssangyong, which has the capacity to produce 180,000 vehicles a year with a workforce of 7,500, was put up for sale after creditors took control late in 1999, when its parent Daewoo Group was dismantled under a mountain of debt.

BETTER CHOICE

The selection of Chinese chemicals firm Blue Star, which also runs a chain of more than 400 noodle restaurants and has a car repair arm, had raised eyebrows, particularly given the clutch of household names in the auto field it was competing against.

Creditors picked Blue Star ahead of fellow state-run firm, Shanghai Automotive Industry Corp (SAIC), which operates several car-making ventures with GM across the country.

"China's SAIC could be named as a new preferred bidder," said Sohn Jongwon, analyst at Goodmorning Shinhan Securities, if creditors opted to start talking again. "SAIC has offered an even lower price than Blue Star. But SAIC may offer better opportunities for Ssangyong's long-term growth."

Analysts said GM-linked SAIC was a better fit for Ssangyong and could help the Korean carmaker, which sells most of its vehicles at home, look abroad.

Ssangyong, which builds Rexton, Korando and Musso SUVs as well as luxury Chairman passenger cars, competes with top local car maker Hyundai Motor Co, which controls 42 percent of the country's $18 billion auto market. Hyundai's affiliate Kia Motors Corp has a 27 percent market share.

Shares in Ssangyong Motor, which had fallen four percent since Blue Star dropped the bid last week, were 2.6 percent higher at 8,700 won by 0300 GMT.

"We believe Ssangyong Motor's share price is significantly undervalued. We also expect the impact of the foiled negotiaton would be limited," said Sohn.