Mahindra preferred bidder for Ssangyong

August 12, 2010
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, SEOUL, Aug 12 – India\’s top utility vehicle maker Mahindra and Mahindra has been chosen as the preferred bidder to take over South Korea\’s bankrupt Ssangyong Motor, creditors said on Thursday.

Ssangyong said it would sign a memorandum of understanding with the Indian carmaker by the end of this month before due diligence begins in September.

Mahindra was chosen over Indian tyre maker Ruia Group and Young An Hat, a local headgear company that also owns bus maker Daewoo Bus Co.

Three other suitors, including an alliance between France\’s Renault and Nissan of Japan, chose not to submit bids apparently because of the high costs.

Ssangyong, South Korea\’s smallest carmaker, said it would receive deposits worth five percent of the bidding price from the Indian company this month.

The selection was made after studying bid prices, funding capabilities and willingness to develop the company, it said in a statement.

Mahindra, which seeks to go global, has been eyeing Ssangyong to gain access to new technologies for sport utility vehicles (SUVs) and expand its overseas presence.

Ssangyong is mainly a manufacturer of low-priced but robust SUVs such as "Rexton," "Kyron" and "Actyon" that are sold globally. It also makes sedans.

If the deal goes through, Mahindra will become the second Indian carmaker to enter the South Korean market after Tata Motors, which bought truck maker Daewoo Commercial Vehicle in 2004.

The creditors did not say how much Mahindra had bid but analysts said the cost of more than 50 percent of Ssangyong would be up to 500 billion won (418 million dollars).

However, the ailing company may insist on more than 740 billion won to clear off debts, they added.

"I think the proper price should be no more than 500 billion won, given the massive cost required to streamline its product lineup," Koh Tae-Bong of IBK Investment and Securities told AFP.

"Ssangyong has good research and development capabilities, but it needs to reorganise its product focus from SUVs and big cars to more popular mid-sized sedans and smaller vehicles. I hope Mahindra can provide enough capital to do so," he said.

Ssangyong was granted court protection from creditors in February 2009 after rising oil prices and slowing demand due to the global recession hit SUV sales and former Chinese parent Shanghai Automotive Industry Corp declined to pump in more funds.

It has since struggled to stay afloat, though a violent strike over job cuts disrupted production for almost 80 days.

Ssangyong has seen some positive improvements this year. It sold 43,881 vehicles, including 26,190 overseas, in the first seven months, compared to 13,091 at the same point last year.

Ssangyong closed down 8.49 percent at 11,850 won in Seoul stock trading on Thursday.

"For now, little is known here about the Indian company," said Koh Tae-Bong of IBK Investment and Securities. "Investors keep dumping the Ssanyong shares because of lingering dissapointment about the flopped Renault bid."

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