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SAIC Takes on Ssangyong Motors

Shanghai Automotive Industry Corp (SAIC), one of China's biggest vehicle producers, clinched a much-heralded final deal with creditors of Ssangyong Motors yesterday to take over the No 4 South Korean automaking firm.

SAIC, the main joint venture partner of US General Motors (GM) 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, such as 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 vehicle firm.

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 Co Ltd, marking the first overseas acquisition by a Chinese vehicle manufacturer.

SAIC is also reportedly in talks with British MG Rover to make a joint acquisition of the car operations in Poland left over by South Korea's bankrupt Daewoo Motors.

All Ssangyong workers will be retained and SAIC will invest in the South Korean automaker to expand its production capacity, according to a memorandum of understanding the two sides signed in July on the merger.

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

"Chinese automakers are eager to gain strong development capabilities because even big names like SAIC are much weaker than foreign rivals in this regard," said Xia Jun with CCID Consulting Co Ltd, the Beijing-based and Hong Kong-listed industry consultancy.

"Such an acquisition is a much quicker way for Chinese automakers to improve development capabilities than if they go it alone," Xia added.

Ssangyong has an annual production capacity of 180,000 luxury sedans and sport utility vehicles (SUVs) 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, according to analysts.

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 its 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 wons (US$522.2 million) last year, helped by cost-cutting efforts 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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