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M&As

Ssangyong Motor struggles to find new owner

EL B&T, Edison Motors have yet to prove their financial prowess, increasing the chance of a rebidding

By Oct 13, 2021 (Gmt+09:00)

The Korando e-Motion, Ssangyong’s first electric vehicle, loaded for export to Europe
The Korando e-Motion, Ssangyong’s first electric vehicle, loaded for export to Europe

Ssangyong Motor Co., the troubled South Korean sport utility vehicle manufacturer, is struggling to find a new owner amid doubts as to whether the existing bidders have enough money to buy the automaker, raising the possibility of another tender, according to investment banking industry sources.

The Seoul Bankruptcy Court judged that none of the bidders have sufficient funds to acquire the debt-laden carmaker and ordered them to supplement the bidding documents by Oct. 15. According to the existing schedule, a consortium led by Edison Motors and another consortium with EL B&T were meant to have proved their financial ability by then. After that, the bankruptcy court was set to start the process of selecting a preferred bidder.

But the local mergers and acquisitions (M&A) industry saw the increasing possibility of another tender as the court has already ordered supplemented bidding documents twice, while neither of them appeared to be raising as much money as they proposed to buy Ssangyong.

NO DEPOSIT YET

A South Korean electric vehicle and battery startup EL B&T, which offered the highest price of around 500 billion won ($418.7 million) for Ssangyong, is known to have not made a required 3 billion won deposit, according to the IB sources on Oct. 13. Any bidder was required to make the non-refundable deposit to show the determination of the acquisition, the sources said. EL B&T has teamed up with Seoul-based Pavilion Private Equity and California-based HAAH Automotive's new entity Cardinal One Motors, according to the sources.

“It is questionable whether a company without enough money to deposit 3 billion won can prove its financial power of 250 billion won, half of the acquisition cost,” said an M&A industry source. “Everything, including bank account balances and the letter of commitment (LOC) was insufficient, as I understood.”

A bidder needs to prove it already has or will be able to raise at least half of the price it offered, the sources said.

DOOR OPEN FOR REBIDDING

It was also not certain if the Edison consortium, which made the deposit, has enough money yet.

Edison was slated to raise 800 billion won to revive Ssangyong, saying it can finance another 500 billion won by selling a stake in Edison, its chairman Kang Young-kwon has said.

But the bankruptcy court would have no reason to delay the preferred bidder selection process if Edison included and proved Kang’s plan in the bidding documents, according to sources. Some pointed out that Ssangyong’s creditors may raise issues on the Edison consortium’s price of 280 billion won.

“We need to leave the door open for rebidding since it is more important to sell well to a ‘proper’ company than to sell it quickly,” said a source close to the deal. “It could cause a more serious problem if we sell it hastily to a company without sufficient money just to close the deal quickly.”

Some criticized the Seoul Bankruptcy Court, saying it made the sale more difficult by breaking the rules. Initially, bidders had been supposed to make the deposit by Sept. 15, a deadline for binding bid submission. But the court included a bidder that has not made the deposit as a candidate, dragging the sale, those critics said.

“The court could have applied a stalking-horse method to the sale, but it chose a difficult way,” said an IB industry source.

A stalking-horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm's remaining assets. The stalking horse sets the low-end bidding bar so that other bidders cannot underbid the purchase price.

“The sale drew weaker-than-expected interest with SM Group abandoning its bid. Now, candidates without sufficient qualifications are competing to become the preferred bidder,” said the source.

South Korea's manufacturing-to shipping-focused SM Group gave up the bid after due diligence on Ssangyong. It concluded that Ssangyong's transformation into an EV brand would take much more money than it had expected, the sources added.

SM Group had been touted as the strongest candidate of Ssangyong, given its cash holdings of 1 trillion won.

Ssangyong, 75% owned by India’s Mahindra and Mahindra Ltd., has been under court receivership since April of this year after it defaulted on its loan payments.

Write to Ji-Hye Min at spop@hankyung.com

Jongwoo Cheon edited this article.

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