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SAIC Takes on Ssangyong Motors

Shanghai Automotive Industry Corp (SAIC) clinched a much-heralded final deal with creditors of Ssangyong Motors yesterday to take over the No. 4 South Korean automaker.

SAIC, one of China's biggest auto manufacturers and the main joint venture partner of General Motors of the US and Germany's Volkswagen, will spend some US$500 million to acquire a controlling 48.9 percent stake of the debt-laden Ssangyong, according to a contract signed yesterday in Seoul.

SAIC beat out a slew of other bidders for Ssangyong, including GM, chemical firm China National Blue Star Corp. and a US pension fund.

The deal makes SAIC the first Chinese automaker to have a controlling interest in a foreign carmaker.

In late 2002, SAIC paid US$59.7 million to buy a 10 percent stake of GM's venture in South Korea, GM Daewoo Automotive & Technologies. It was the first overseas acquisition by a Chinese automaker.

SAIC is also reportedly in talks with Britain's MG Rover to jointly acquire the car operations in Poland left over by South Korea's bankrupt Daewoo Motors.

All Ssangyong workers will be retained and SAIC will sink funds into expanding its production capacity, according to a memorandum of understanding the parties signed in July.

Analysts say the Ssangyong deal will enhance SAIC's development and give the South Korean company a foothold in China, the world's fastest-growing car market.

"Chinese automakers are eager to strengthen development capabilities, because even big names like SAIC are much weaker than foreign rivals in this regard," said Xia Jun of CCID Consulting in Beijing. "Such an acquisition is a much quicker way for Chinese automakers to improve development capabilities than if they go it alone."

Ssangyong is currently capable of producing 180,000 luxury sedans and sport utility vehicles (SUVs) annually in South Korea. It controls 10 percent of the South Korean automobile market.

The deal could help Ssangyong increase sales in China swiftly through SAIC's strong marketing networks.

SAIC, newly crowned as one of the world's top 500 multinationals with profits of US$1 billion and revenues of US$12 billion last year, is preparing for a Hong Kong listing that could raise some US$1 billion for expansion.

The company aims to increase its annual output to 4 million vehicles and become one of the world's six largest automakers by 2020. It sold 782,000 automobiles last year.

SAIC now has 60,000 employees and assets of 100 billion yuan (US$12.1 billion).

Ssangyong was put up for sale in 1999 after creditors took control in the wake of the Asian financial crisis. Its net profit surged by more than 80 percent to 589.6 billion won (US$522.2 million) last year, helped by cost-cutting and robust sales of the Rexton and Korando SUVs.

Its debts of US$1.1 billion exceed its market capitalization of around US$714 million.

(China Daily October 29, 2004)

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