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South Korea's state-run Korea Development Bank, the main creditor of SsangYong Motor, said on Friday that it would not extend fresh loans to the troubled automaker unless its Chinese parent company provided rescue funding first.
In a statement, the bank called on the Shanghai Automotive Industry Corp. to extend 320 billion won (US$246 million) to the carmaker before it considers providing new loans. The fund includes 120 billion won (US$92.25 billion) that SAIC promised to pay SsangYong Motor for technology transfer upon its acquisition in 2004.
SAIC, which owns a 51 percent stake in SsangYong Motor was also urged to guarantee a combined 200 billion won (US$153.75 billion) worth of loans from two Chinese banks so that the carmaker takes up the much-needed loans quickly. The banks, which include the Bank of China, have already promised the loans.
"The owner of SsangYong Motor has called for us to provide new capital, but we have reached a conclusion that it must move first," a KDB official said. "Only after that, we can consider our step."
The statement came as senior executives from SAIC travel to Seoul to meet South Korean government officials to discuss bailout measures for the automaker. They are scheduled to hold talks on Friday evening with Vice Industry Minister Rim Che-min.
According to industry sources, the Chinese executives are expected to ask South Korea to inject cash into the ailing carmaker and in return promise massive restructuring that includes a 50 percent cut in labor forces. "Shanghai Automotive is considering slashing half of SsangYong Motor's 7,000 workers as part of efforts to reduce manufacturing costs," a source said.
However, the labor union has opposed massive restructuring, insisting that mismanagement by the Chinese owner is the cause for the automaker's financial troubles. The union also blamed SAIC for neglecting its promise of investment and has called on the Chinese management to step down.
"Shanghai Automotive has failed to carry out its promise to invest 1.2 trillion won (US$922.5 billion) in improving the plant, which has led to this crisis," a union leader said.
The union is also angry at SAIC's decision to delay salaries to workers in December. Earlier this month, the carmaker said it could not pay salaries on time this month, citing its cash crunch and the slowing auto industry, in the wake of the global economic downturn, as the main cause.
Unionized workers held a protest rally in front of the Chinese embassy in central Seoul, accusing Chinese executives of attempting to transfer SsangYong Motor's technology to SAIC rather than improving facilities since its acquisition.
In response, SAIC warned that it could exit from SsangYong Motor next month if the labor union did not accept a restructuring plan, which sent the automaker’s shares tumbling more than 12 percent on Wednesday. Its shares have dropped 62 percent in the past three months amid concerns over its financial health given the slump in the car industry.
SAIC purchased a controlling 51 percent stake in SsangYong Motor for 590 billion won (US$454.33 billion) in 2004, but since, has suffered huge losses with its shares now valued at a tenth of its original price.
Hit by a deepening sales slump at home and abroad and the energy crisis earlier this year, SsangYong Motor, which mostly produces sports utility vehicles, is suffering from severe cash shortages.
In the third quarter of this year, SsangYong Motor posted a net loss of 28.2 billion won (US$21.71 billion), marking the fourth consecutive quarterly loss. The company says it expects a net loss of more than 100 billion won (US$76.98 billion) this year, compared to 11.6 billion won (US$8.92 billion) net profit last year.
Last month, the automaker's sales plummeted 62.6 percent from a year earlier to 3,835 units. Sales for the first eleven-months plunged by 32 percent year-on-year.
To cope with the weakening demand and control rising inventories, SsangYong Motor has halted operations at its plants for 10 working days until the end of this month.
"The fate of Ssangyong Motor is largely dependent on the result of this week's talks between Shanghai Automotive and the South Korean government," an industry source said. Shanghai Automotive is expected to unveil its measure after its executives return home over the weekend, he said.
