* Chinese carmakers will continue to seek foreign brands
* Ssangyong submits rehabilitation plan to court
* Top shareholder SAIC could face initial 5-to-1 writedown
* Calls for debt-to-equity swap on part of debt
* Ssangyong shares fall 4 pct, after jumping 13 pct (Recasts)
Cash-strapped South Korean automaker Ssangyong Motor (003620.KS) proposed a capital writedown on Tuesday that would slash the stake of SAIC Motor (600104.SS), its Chinese majority shareholder.
Ssangyong, which makes the Rexton sport utility vehicle and was put under court receivership in February, said it put its plan to a Seoul court, seeking an initial 5-for-1 writedown of SAIC's shareholding, with a further writedown planned.
Analysts said that despite this soured investment, Chinese automakers would still be interested in buying foreign brands.
SAIC failed with Ssangyong because it's an SUV maker, but SAIC made a success with MG Rover as it made sedans, said Song Sang-hoon, an auto analyst at Kyobo Securities. So, if they can use other makers' technologies, they will still buy them.
SAIC has launched a mid-range sedan, the Roewe, developed from technologies acquired from defunct UK car maker MG Rover.
Chinese carmakers are venturing on to the global stage with interest in Western brands from Volvo (F.N) to Hummer [GM.UL] and Saab, but there are doubts their inexperienced companies can manage the transformation such deals would bring. [ID:nSHA303386]
Still, automakers in the world's top car market are likely to eye Western brands not just for the technologies they can bring.
Ssangyong is not a global brand. But Saab and Hummer are a different story for Chinese makers, said Cho Soo-hong, an analyst at Hyundai Securities.
Ssangyong plans a capital writedown and debt-for-equity swap as part of its turnaround programme.
It said the initial stage of the writedown would reduce SAIC's 51.33 percent stake at a rate of 5-for-1. Other shareholders would see their holdings written down at 3-to-1 initially, Ssangyong said.
SAIC could not be reached for comment.
Under the proposal, Ssangyong's major creditors would swap part of their receivables for new Ssangyong shares. Ssangyong has total debts of 1.23 trillion won ($1 billion), and would seek to swap 393.3 billion won of that for equity.
Analysts doubt the plan will help revive Ssangyong, which was also hit by a near 3-month union strike in the summer. They say the company, which lags well behind Hyundai Motor Co (005380.KS) and Kia Motors Corp (000270.KS) in the domestic market, needs trillions of won to develop new models.
Even after the court accepts the plans, new shareholders will have to pump in massive money to add more line-ups. Before that, no one can assure its rehabilitation, said Kang Sang-min, an analyst at Prudential Investment & Securities.
Ssangyong sold 2,012 vehicles in August, down 72 percent from a year earlier. It has cut its full-year sales target to 32,000 vehicles from an initial target of 55,650 announced in April, a spokesman said.
Ssangyong shares closed down 3.9 percent after earlier jumping 13 percent. The wider market rose 1.1 percent.
The Seoul Central District Court will review the proposal with creditors and stakeholders at meetings beginning on Nov. 6. ($1=1220.4 Won) (Additional reporting by Fang Yan in SHANGHAI; Editing by Ian Geoghegan)