SEOUL - Korea's Ssangyong Group has begun a corporate restructuring aimed at saving its foundering auto business from becoming the industry's first victim of a slowing local economy and huge capacity surplus.
The group's 25 affiliates will be cut to 21 through mergers and selloffs. Moreover, Chairman Kim Suk-Joon has ordered cost cuts across the board, and has trimmed debt by about $600 million.
Looking for fresh capital, Ssangyong also has been offering a 49 percent interest in its automotive unit to major automakers, including General Motors. An investment banker in Tokyo said Ssangyong also has made presentations to at least three Japanese carmakers.
So far there have been no takers. Nor has Daimler-Benz AG, which owns 5 percent of Ssangyong Motor, exercised its option to raise its share to 10 percent.
'The underlying message is that the restructuring ... won't affect the bottom line anytime soon,' said Kang Hun-Sok, auto industry analyst with ING Baring Securities Ltd. in Seoul.
Since 1991, when it last made a profit, Ssangyong Motor's cumulative losses have totaled about 500 billion won, or about $565 million at current exchange rates.
But the bleeding is worsening; last year's loss of 228.4 billion won, or about $256 million, was nearly twice as large as the previous year's.
The principal source of Ssangyong's woes is its heavy debt load, now about $3.4 billion.
The company, a truckmaker and specialist in four-wheel-drive vehicles, began borrowing heavily several years ago to finance a decision to enter the luxury passenger-car segment. That borrowing has since pushed its net debt-to-equity ratio to 8.8-to-1, a stratospheric level when compared to a typical level of 1- or 1.2-to-1 at most well-financed companies.
Now, with a shrinking, saturated domestic market and intense domestic and foreign competition in the segment, the investment appears to have little chance of ever paying off.
'They're being killed by interest costs. Most of their losses are due to interest expenses,' said Kang. 'On an operating level, they're doing OK.'
As part of the streamlining, Ssangyong Motor will sell the building housing its Seoul r&d center. The value of the building is estimated at $110 million. The r&d staff is moving to a new, lower-rent location in Pundang, a satellite city.
Also reported to be on the block is the company's wheel manufacturing division in Pupyong, a suburb of the Korean capital. With an annual production capacity of 2.7 million units, it is the country's largest producer of wheels.
At the same time, Ssangyong Motor has been working hard to improve fundamentals. Revenue last year rose 39 percent to $1.7 billion, on sales of 79,800 vehicles. Home-market sales jumped 69 percent, and exports rose 31 percent.