Court approves receivership for Ssangyong Motor

The Seoul Central District Court granted bankruptcy protection on Feb. 6 to Ssangyong Motor Co., S. Korea's smallest automaker and the Korean unit of Chinese auto giant SAIC.

Ssangyong applied for a court receivership on Jan. 9 after it saw a 30 percent drop in auto sales, mainly driven by weak consumer demand over the gas-guzzling sport-utility vehicles that the company features.

"Currently, Ssangyong is not able to repay promissory notes of 150 billion won ($108.4 million) that are due in April with its 40 billion won of cash assets. Ssangyong also failed to honor promissory notes to suppliers which total 92 billion won in January," bankruptcy judge Ko Young-han said in explaining why the court accepted bankruptcy protection for Ssangyong.

The court also designated Lee Yoo-il, former chief executive with Hyundai Motor, and Park Young-tae, Ssangyong's financial director, as receivership managers. It said that Lee has ample experience in the local auto industry, and that Park, as a Ssangyong insider, is in a key position to assist.

Samil PricewaterhouseCoopers was designated to evaluate Ssangyong's financial status.

With the ruling, Ssangyong, a Korean unit of China's Shanghai Automotive Industry Corp., is no longer controlled by SAIC. The Seoul Central Court also froze Ssangyong's obligations to pay debts from Jan. 12.

SAIC has a 51 percent stake in Ssangyong. About 7,200 Ssangyong employees and creditors, led by state-run Korea Development Bank, welcomed the court's decision.

Industry officials say the court's decision does not mean Ssangyong is off the hook. Ssangyong must develop a restructuring plan that will be approved by creditors. If creditors think the restricting plan is not adequate, or if the automaker's financial status turns out to be worse than expected, court receivership might be scrapped.

The company's labor union also remains a stumbling block, as it has expressed strong opposition to job cuts. Industry officials, however, say Ssangyong needs to slash at least 30 percent of its workforce.

The firm also faces a problem with its product lineup. "The most urgent task for Ssangyong is that it should diversify its lineup because it is too focused on SUVs," said Sunny Sohn, an analyst with KB Investment and Securities. "If we look at Kia Motors, we can get an answer why Ssangyong failed. Both Kia and Ssangyong have reported operating deficits, but Kia led a profit turnaround last year after it launched new midsized models."