Posted January. 10, 2009 06:53,
Shanghai Automotive Industry Corp. of China, the parent company of Ssangyong Motor of Korea, has filed for court receivership, effectively abandoning its management rights over the carmaker.
Ssangyong held board meetings in Shanghai Thursday and Friday and filed for court receivership. Yesterday, it filed for court protection and a blanket injunction at the Seoul Central District Court.
If the court accepts the request, the Chinese company will be the first foreign business entity to withdraw its investment from Korea since the global economic crisis began. It will make a significant impact on all of Koreas sectors as well as the process industry.
If the court receivership begins, the Chinese company cannot exercise its management rights and an entity designated by the court will take charge of the troubled carmaker.
In its announcement, Ssangyong said, At the directors meeting in Shanghai, we decided to file for court receivership to deal with the pending liquidity crisis and become a sustainable company. Well set up measures to normalize management and drive them aggressively.
Measures to cut fixed cost including receiving applications for voluntary retirement; cutting the average income for those who temporary leave to 50 percent; cutting wages 10-30 percent and freezing promotions and new employment for two years; and temporarily suspending welfare benefits and negotiating with the union over the measures.
Ssangyong also plans to pay overdue wages. Ssangyong Motors President Choi Hyeong-tak and CEO Zhang Haitao both resigned yesterday.
The government and the Korea Development Bank will decide whether to provide financial support after considering Ssangyongs influence on the domestic economy and possibility of its revival when the court receivership request is accepted.
Kim Yeong-hak, an official of the Knowledge Economy Ministry, said, We first need to wait for the courts decision. But well put higher priority on issues related to suppliers and provincial economies related to the carmaker.
Certain experts, however, say the Chinese company will withdraw its request for court receivership. Auto industry sources said, SAIC may use brinkmanship strategy to pressure on the union, the Korean government and the Korea Development Bank.
SAIC can withdraw its request before the court makes a decision. If the request is not accepted, ownership of Ssangyong will be returned to the Chinese company.