[Exclusive] Industrial Bank to Rescue Ssangyong Motor Facing Bankruptcy Crisis... Announcement Likely on the 21st

Considering Severe Damage to Employment and Local Economy
Conversion to Equity and Kian Fund Methods Also Discussed Besides Maturity Extension

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Korea Development Bank (KDB) has decided to rescue Ssangyong Motor, which is facing a liquidity crisis. This decision is interpreted as considering the additional employment damage and the impact on the industry amid the domestic automobile industry's crisis caused by the COVID-19 pandemic.

According to the government and industry sources on the 19th, KDB is finalizing plans to extend the maturity of Ssangyong Motor's loan worth a total of 90 billion won, which is due on the 21st, once more, and is coordinating the timing of the final announcement. The 21st, the maturity date, is likely. A government official said, "Positive consideration is being given to supporting liquidity, including the repayment issue of Ssangyong Motor's loan," adding, "We plan to announce it soon after final agreement."

KDB is known to have considered the shock to employment and industry. If Ssangyong Motor collapses, a chain reaction of employment shocks could occur among partner companies and sales agencies, raising concerns about large-scale unemployment.

In September, KDB extended the maturity of the 90 billion won loan once and demanded a responsible attitude from the major shareholder. At that time, Choi Dae-hyun, Vice President of KDB's Corporate Finance Division, emphasized, "To support Ssangyong Motor, the responsible party must have the will and make responsible efforts," and "The company's sustainability must also be confirmed."

With the weight of KDB, the main creditor bank, deciding to defer loan repayment, Ssangyong Motor is expected to avoid the worst-case scenario of court receivership. However, difficulties are expected to continue.

Considering the ongoing liquidity crisis, a debt-to-equity swap method may also be considered. If a debt-to-equity swap occurs, KDB will change from creditor to shareholder, eliminating Ssangyong Motor's loan repayment burden, which could increase investment capacity.

There is also a possibility that the Ssangyong Motor support plan will be handled through the 40 trillion won Industrial Stabilization Fund. Ssangyong Motor hopes to receive about 20 billion won through the Industrial Stabilization Fund. However, considering that Ssangyong Motor is not a company struggling due to the COVID-19 crisis, a policy judgment from the government is required.

Ssangyong Motor has posted losses for 15 consecutive quarters (3 years and 9 months) from 2017 through the third quarter of this year. The cumulative operating loss during this period exceeded 600 billion won. Also, according to Ssangyong Motor's audit report, besides the overdue debt this time, short-term borrowings due within one year exceed 160 billion won.

A financial sector official said, "Even if Ssangyong Motor avoids court receivership through KDB's rescue, the recurring maturities and future business conditions are not easy," adding, "The fundamental resolution of liquidity issues remains a challenge."