Mahindra, Ruia enter final lap of race for Ssangyong Motor

Automobile major Mahindra & Mahindra (M&M) and Ruia group firm Dunlop have made it to the qualified bidders’ list for South Korean SUV maker Ssangyong Motor. The two are among the six qualified bidders who will now conduct due diligence on Ssangyong, the Korean firm said Friday. Ssangyong Motor is believed to be worth around $500 million or Rs 2,328 crore, analysts said.

On May 28, Ssangyong said that seven firms had submitted letters of intent, including M&M, Dunlop, Renault-Nissan and local companies Seoul Invest, a private equity fund, and YoungAn Hat, which owns a bus-maker.

An M&M spokesperson said: ?Mahindra & Mahindra has been invited by Ssangyong, Korea to participate in the bidding process.? A spokesperson for the Ruias too confirmed their place in the qualified bidder list. The due diligence will last till July 16, and the companies will submit bids on July 20. The winner is likely to be announced by August.

In 2008, Ssangyong reported a 227.4 billion won (around Rs 900 crore) operating loss and faced severe liquidity problems. These were exacerbated by the tight credit in the wake of the global financial crisis. It applied for corporate rehabilitation proceedings to the Seoul Central District Court on January 9, 2009. The request was granted and the rehabilitation proceedings started on February 6, 2009. With the approval of the corporate rehabilitation plan, the company?s paid-in capital decreased from 604 billion won (around Rs 2300 crore) to 180.6 billion won (around Rs 700 crore). After a series of capital reductions and equity conversions to shareholders and rehabilitation claims, the rehabilitation debt decreased from 1,194.1 billion won (around Rs 4500 crore) to 740.4 billion won (around Rs 2800 crore). M&M is said to have an edge among the qualified bidders and is termed ?a natural fit for the Korean SUV maker? by industry observers.

?It will give M&M mileage in markets where it is not big, but wants to penetrate. The move comes while M&M is preparing for a US entry by the year-end and is looking to expand its reach with high-end SUVs,? said an auto analyst in Chennai. M&M will also get access to Ssangyong?s dealership network in some key SUV markets like Russia.

Ssangyong?s proximity to China, Russia and the Asean, coupled with Korea?s free trade agreements (FTAs) with

Europe are seen as key attractions. The Korea-EU FTA likely in the second half of 2010 is seen as beneficial to the Korean auto industry. Under this, the 10% tax on Korean cars imported into Europe will be abolished, making them compete better against Japanese and Chinese cars.

?M&M, which is currently weak in the EU, can significantly benefit from this FTA in the light of its plan to expand its global reach,? said an auto analyst, adding that M&M now sells very few of its SUVs in EU.

However, VG Ramakrishnan, director, automotive and transportation, Frost & Sullivan, South Asia and Middle East, pointed to the high labour costs in South Korea, which will make manufacturing there an expensive affair. He added that in the short-run, M&M would not want to make any significant changes in Ssangyong?s manufacturing set-up. M&M?s recent acquisition of Reva may also benefit from its Korean presence, given the strong battery industry in Korea. Pawan Goenka, president, automotive sector, M&M, had said that he would study the reasons behind Ssangyong?s fall and see if the problem is fixable. ?Russia was a strong market for the company,? he had said.

Ssangyong has been manufacturing seven line-ups (2 passenger cars, 3 SUVs, 1 SUT, and 1 MPV) in total at its Pyung-taek plant, with assembly capacity of 1.2 lakh cars per year on single-shift basis. Its Chang-won plant has a capacity of 1.5 lakh cars per year on single-shift basis. Globally, Ssangyong has 1,291 dealers in over 98 countries, with 2 local offices and 3 subsidiaries in Europe and China for auto manufacturing as well as auto parts supply.

The global automotive industry is expected to grow at 6.9% CAGR for the next 5 years, while the SUV industry in particular may show 7.3% CAGR in that period.

Industry growth is expected to be mainly led by the world?s largest market, China and BRIC countries. By 2012, China?s auto industry is expected to exceed the market demand of 10 million cars thanks to its rapid economic growth and increasing auto demand. In addition, demand in Russia is expected to grow at CAGR of 22.7% until 2014.