Expanded Corporate Structural Innovation Fund, Slim Hope for Ssangyong Motor and Auto Parts Industry Revival

Ssangyong Motor Public Bidding Not Held This Month
Possibility of Investment Fund Formation Participation in Consortium Formed by Companies and Private Equity Funds

[Asia Economy Reporter Park Sun-mi] The Corporate Restructuring Innovation Fund, which is being additionally raised to the scale of 1 trillion won to activate market-led restructuring, is opening up the possibility of revival not only for Ssangyong Motor but also for the automotive parts industry facing liquidity crises.

According to the automotive and financial industries on the 12th, a public bidding for Ssangyong Motor, which is undergoing corporate rehabilitation procedures, is scheduled to take place within this month. Considering the tight financial conditions of medium-sized and small enterprises interested in Ssangyong Motor, it is highly likely that an investment fund will be formed in the form of a consortium between companies and private equity funds to carry out the acquisition and merger (M&A) of Ssangyong Motor.

In the industry, since a consortium seeking funding and rehabilitation plans for acquiring Ssangyong Motor is being mentioned, it is expected that if a smooth environment for forming investment funds is established, the activities of such consortia could become more active. This is also why there is growing anticipation that the third Corporate Restructuring Innovation Fund, recently announced by the Financial Services Commission with a scale of 1 trillion won, could act as a savior not only for Ssangyong Motor but also for the automotive parts industry facing liquidity crises.

The third Corporate Restructuring Innovation Fund, which has been confirmed for additional formation this time, will begin recruiting fund management companies within this month and can start investing from June. A financial authority official stated, "The additional formation of the Corporate Restructuring Innovation Fund was not specifically intended to save Ssangyong Motor," but added, "If a specific company lacks funds to acquire Ssangyong Motor, and an investment fund is formed in the form of a consortium with private equity funds, funds from the Corporate Restructuring Innovation Fund can be injected." He further noted, "The key issue is whether a private equity fund management company interested in investing in Ssangyong Motor will emerge."

The third Corporate Restructuring Innovation Fund will be created with a total scale exceeding 1 trillion won, based on 67.5 billion won of government finances, with policy financial institutions such as KDB Industrial Bank, Export-Import Bank, IBK Industrial Bank, Korea Asset Management Corporation (KAMCO), as well as private banks and securities companies contributing to form a mother fund of 451 billion won, and private investments adding approximately 550 billion won or more. Among the 1 trillion won, the project fund, which selects investment targets first and then raises funds for investment, will be at least 362.5 billion won, and the blind fund, which raises funds first and then finds investment targets, will be at least 637.5 billion won in scale.

Wider Scope of Fund Managers and Expanded Investment Targets Compared to 1st and 2nd Rounds

Unlike the past 1st and 2nd Corporate Restructuring Innovation Funds, a separate allocation of capital has been made for newly established and small fund managers to broaden the range of participating fund managers, and the investment targets have been expanded to include companies undergoing preemptive restructuring such as capital erosion and excessive debt, as well as companies undergoing post-restructuring such as workout and rehabilitation procedures.

For companies undergoing post-restructuring, incentives have also been strengthened by increasing the performance fee from the existing 10% to 15% when investing above a certain ratio. Given the government and financial authorities' determination to save Ssangyong Motor, it can be interpreted that by broadly laying the groundwork to expand corporate restructuring into the private investment sector in line with the timing of Ssangyong Motor's public bidding, a breakthrough to resolve the Ssangyong Motor issue has been prepared.

Previously, Dongbu Steel, which was in a workout state, and Sungdong Shipbuilding & Marine Engineering, which was facing bankruptcy, successfully revived by receiving funds from the Corporate Restructuring Innovation Fund through a consortium between companies and private equity funds. These cases are regarded as successful examples of the Corporate Restructuring Innovation Fund activating market-led restructuring.

Some expect that since the Corporate Restructuring Innovation Fund was established with the purpose of reviving companies that have technology and competitiveness but may collapse due to temporary liquidity problems, it could also create opportunities not only for Ssangyong Motor but for the automotive parts industry struggling with management difficulties due to liquidity shortages.