SEOUL -- Creditors of Ssangyong Motor Co. have agreed to sell the South Korean SUV maker to Shanghai Automotive Industry Corp. for $522 million, a source close to the deal told Reuters on Wednesday.
Ssangyong has been for sale since creditors took control of the debt-ridden Korean carmaker in 1999, when its parent, Daewoo Group, failed under a mountain of debt.
China's state-run SAIC, General Motors Corp.'s main Chinese partner, was named in July as preferred negotiating partner to buy a 48.9 percent stake in Ssangyong.
"There are a lot of terms and conditions on the deal but (it) will be signed at 10,000 won per share," the source said. "By year end, all settlements will be completed, with current management handling issues raised by the union."
The source said creditors planned to sign a final deal, worth $522.2 million, on Thursday.
SAIC's buyout will help Ssangyong build a bridge to China's vast market but raises concerns it will further stoke fierce competition in a market where economy-cooling measures have sparked price wars and left unsold cars in dealers lots.
"It means the start of tougher fighting in the bearish local market," said Kim Hag-ju, analyst at Samsung Securities.
"The market will face a glut from overcapacity and domestic carmakers will see profits squeezed, which will require an industry restructuring in some form."
Analysts also said transferring Ssangyong's technology to Shanghai could backfire if China floods the South Korean market with cheaper models.
But Song Sang-hoon, a Hyundai Securities analyst, said the deal was a win-win for both Ssangyong and Shanghai.
"It would have been difficult for Ssangyong to survive on its own ... Also, for Shanghai, Ssangyong's advanced technology is crucial to grow as a real automaker."
In 2002, GM, SAIC and Japan's Suzuki Motor Corp bought control of South Korea's Daewoo Motors.
SAIC has a large joint venture with Volkswagen AG and is considering listing its entire business, possibly overseas.
A deal to sell Ssangyong to Chinese state chemicals firm Blue Star collapsed in March over the price.
Ssangyong, which builds Rexton, Korando and Musso SUVs as well as the luxury Chairman sedan, has annual capacity to make 200,000 vehicles and plans to double production by 2007.
The South Korean carmaker has a market value of $714 million, but is mired in $1.17 billion of debt.
Its net profit jumped 84 percent last year to $523 million on cost-cutting measures and robust sales.