GM Daewoo-Ssangyong Motor Merger Mulled

GM Daewoo and the bankrupt Ssangyong Motor could be merged into a unified company for eventual sale, the main creditor bank of both automakers said yesterday.

Korea Development Bank will first need to acquire the management rights of the two companies to push through the merger. The bank’s leadership said the consolidation could raise the combined value of the two companies and normalize their operations earlier than scheduled.

A high-ranking bank official said yesterday, “Since GM Daewoo appears unable to revive through its own efforts, we have established measures to take over the company’s management. If we do so, we will consider measures to merge GM Daewoo with Ssangyong and sell the unified company.”

Experts in the auto and financial industries had suggested the merger and subsequent sale from the beginning of the year, but this is the first time for the bank to make the proposal.

Another bank official said, “There are several variables including the response of the parent company GM in the United States, but this is the best scenario available now.”

GM Daewoo’s specialization in small and medium-size cars and Ssangyong’s prowess in building large cars and sports utility vehicles are expected to create a synergistic effect.

More than one trillion won (805.8 million U.S. dollars) is needed to set up assembly lines for large cars such as the Ssangyong luxury sedan Chairman. Thus, certain financial experts say a merged carmaker that can produce all kinds of vehicles will draw much attention from other carmakers at home and abroad.

To realize this scenario, the bank needs to become the largest shareholder of both companies and exercise management rights. The bank can become the largest shareholder of Ssangyong if the court orders the carmaker to reduce capital and the bank accepts a debt-for-equity swap.

Another option is for the bank to take over GM Daewoo in return for buying a 23-percent stake from the parent company GM. Whether the U.S. carmaker will sell its stocks to the bank remains unclear, however, since GM says it can normalize operations through its own efforts.

Accordingly, experts within and out of the bank say the bank could buy GM Daewoo by transferring its bonds worth 1.1 trillion won (886.4 million dollars) into capital. If completed, the debt-for-equity swap will make the bank the company’s largest shareholder since GM Daewoo’s capital was just 1.06 trillion won (854.1 million dollars) at the end of last year.

Yong Dae-in, an auto sector analyst at Hanwha Securities in Seoul, said, “If GM Daewoo and Ssangyong are merged, a new owner for the unified company could be found far earlier than expected. It will also boost competition in Korea’s auto market and encourage domestic carmakers to upgrade their technologies.”

legman@donga.com chance@donga.com