SAIC, Ssangyong sign MOU
(China Business Weekly)
Updated: 2004-08-02 11:34

SAIC reportedly is hoping to enhance its research and development capabilities while adding weight to its overseas listing plans, said Wayne W.J. Xing, a senior automotive industry analyst and publisher of China Business Update (CBU).

If successful, SAIC will become the first Chinese carmaker to hold a majority stake in an international counterpart.

The parties will have three months to negotiate and finalize details of the takeover. The final deal may be hammered out sometime after September.

Any agreement will be subject to approval of regulators and creditors in both nations.

Analysts suggest the deal could enable Ssangyong to gain access to China's vast market, and help SAIC boost its R&D strength.

"There is a possibility SAIC will go international, by buying an overseas plant. Once successful, SAIC's export volume would surge," said Xing.

"More important, its R&D capabilities might be strengthened."

Other experts are more pragmatic.

"I do not see a significant impact brought about by SAIC's takeover of Ssangyong ... since the South Korean automaker is not a big company at all," said Jia Xinguang, a top auto market analyst with the China National Automotive Industry Consulting and Development Corp.

"Also, its technology is not as developed as the global leaders."

SAIC spokesman Xue Hao declined to comment on the experts' views.

"Everyone has his or her own opinion. We cannot comment on them, as negotiations are ongoing ... since the deal is still not sealed," Xue said.

Ssangyong's creditors recently said SAIC was their preferred buyer of the US$360-million majority stake in the sports utility vehicle manufacturer.

Ssangyong has been on the block since 1999, after creditors took control of the debt-ridden South Korean automaker. The firm had been a subsidiary of Daewoo Group, which failed under a mountain of debt.

SAIC is US-based General Motors' main Chinese partner. In 2002, GM, Shanghai Auto and Japan's Suzuki Corp bought control of Daewoo Motors.

SAIC, which is State-owned, also has a large joint venture with Volkswagen AG. SAIC is currently considering listing its entire business, possibly overseas.

Sources from Chohung Bank, Ssangyong's main creditor, said the deal would introduce new energy into the firm, and provide the South Korean carmaker with the possibility of tapping China's market.

"For Ssangyong, the deal could help it establish a much-needed bridgehead for sales in China," said Song Sang-hoon, auto analyst at Hyundai Securities.

"And Shanghai could make a foray into the lucrative SUV segment with the help of Ssangyong's advanced technology."

"SAIC had the highest score on prices, other takeover terms and post-acquisition development plans based on a close study of takeover proposals," Chohung said in a statement.

"A US-based pension fund had the second-highest score, and will be granted a chance to negotiate in the event talks with Shanghai Automotive fall through."

Said Xue: "Talks are continuing. We're waiting for the final word from the Koreans."

A deal to sell the troubled automaker to China's State-owned chemicals firm Blue Star collapsed in March over price differences.

Ssangyong, which builds Rexton, Korando and Musso sport utility vehicles, and luxury Chairman passenger cars, has an annual capacity to produce 200,000 vehicles.

The firm plans to double its production by 2007.

The South Korean carmaker is worth an estimated US$751 million, but is wallowing in 1.32 trillion won (US$1.14 billion) in debt.

Its net profit jumped 84 per cent last year, to 589.6 billion won (US$57.4 million), due mainly to cost-cutting measures and robust sales.

Analysts suggest, even though the deal has not been finalized, the possible acquisition might add weight to SAIC's overseas listing plans.

"Although it is still unknown whether this is a blessing or not, the deal may help SAIC in its listing efforts," Jia said.

SAIC recently named the three banks that will help it arrange its overseas initial public offering (IPO). The deal could be worth US$2 billion.

Deutsche Bank, Merrill Lynch and Morgan Stanley will handle SAIC's proposed listing, a source close the news said.

South China Morning Post, which is based in Hong Kong, recently reported the company plans to raise up to US$2 billion in its share offering.

SAIC has been expanding aggressively in China with GM, putting it in a better position to compete with the country's top automaker, First Automotive Works.

Foreign carmakers -- such as Volkswagen, GM and Honda Motor Co Ltd -- have invested billions of dollars in China, as they have chased increasingly affluent customers in the booming economy.

China is the world's fastest-growing major auto market. Last year, car sales in China jumped 75 per cent, to a record 1.97 million units.

That growth is expected to slow to 20-30 per cent this year.

Dongfeng Motors, the country's third-largest carmaker, is also gearing up for an overseas IPO.

Dongfeng has named China International Capital Corp, Deutsche Bank and Merrill Lynch as its underwriters.

Dongfeng's listing, expected to raise up to US$1 billion, could take place by year's end.

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