Ssangyong to be a leveraged buyout: Ruia

Says money is not a problem, while looking out for distressed assets

Either Pawan Kumar Ruia, chairman of the Rs 3,000-crore Ruia Group, is particularly adept at masking his anxiousness to complete the possible acquisition of South Korean car maker Ssangyong Motors, or there isn’t complete clarity yet on how the automobile manufacturer, if bought over, will fit into the group, which has interests in tyres, heavy engineering and sealing systems.

In any case, Ruia claims he doesn’t quite understand the speculation and scrutiny that has been triggered by his entry into the race for Ssangyong — a debt-ridden firm that had once attracted Germany’s Daimler for a technical alliance — along with Renault and domestic major Mahindra & Mahindra.

“At this particular time, it is only an intention (to acquire) that we have shown. Now, we will go for due diligence. In case we find that this (company) is not our cup of tea, we will walk out,” says Ruia, sitting in his wood-paneled meeting room.

On his left, a Paritosh Sen artwork describes a man, teeth bared, about to bite into food that is clasped in his hands.

Ruia’s present position reflects a similar poise. Although it is not immediately clear as to why the group needs to add an East Asian auto maker to its clutch of firms, the chairman explains that he is hungry. For distressed assets, that is.

“We are not just looking at Ssangyong. We are looking at a number of other distressed companies. There have to be three things. First, there has to be a distressed asset. Then the distressed asset must be a size which you like. And lastly, the opportunity has to be on your table. If these three things come together, then we will look into an asset,” he says.

Ssangyong Motors, as a prospective acquisition, isn’t without its complications. The firm was sinking with debt in 1998, when Daewoo spent about $1 billion to pick it up, only to let go of it two years later. Subsequently, in October 2004, it merged with China’s Shanghai Automotive Industry Corporation (SAIC). Ssangyong, according to reports, has about $1.1 billion of liabilities at present.

Clearly, the problems have persisted, and Ruia is cognizant of these. “We have to see whether, given the existing situation, the company can break-even without any expansion. That’s the first point we need to see before deciding if we want to go in or not. Then, if that is positive, we have to see if there can be growth vis-a-vis India. Everything has to be linked back to India,” he adds.

Money, Ruia insists, is not a problem. Indeed, if the competition includes Renault, the world’s fourth largest car maker, by virtue of its alliance with Nissan and the $6.3-billion Mahindra Group, deep pockets will make a difference.

“Based on our valuation of the company (Ssangyong), we feel that it will certainly be a leveraged buyout. But things are premature. At this point, we don’t know if we are talking about $50 million or $500 million or a billion, because the company has losses, (that has been the) perpetual situation, and the Ebitda numbers are literally negative. So, we have to see what the numbers are,” says Ruia.

Incidentally, the Ruia Group, with a turnover of about Rs 3,000 crore, has been built on acquisitions. Since 2003, it has picked up engineering firm Jessop, tyre makers Dunlop India and Falcon, and European sealing firms Schlegel and Draftex (formerly Henniges Automotive Grefrath GmbH).

None of these, however, have been as intrepid as the bid for Ssangyong Motors. Not only is Ruia punching above his weight, but what exactly he will do if the prize does come to him is ambiguous.

What is certain, though, is that this will not be the last time Ruia throws down the gauntlet when he is least expected to. As he himself says, “I do not get scared, nor do I get excited. Whether somebody else is a bidder, does not affect me. I don’t see who my opponent is. I am only seeing the target.”