Friday, February 28, 2020
KDB Considering Extending Maturity of Its Loan to SsangYong Motor
Mahindra's Support Hinges on KDB's Action
KDB Considering Extending Maturity of Its Loan to SsangYong Motor
  • By Michael Herh
  • December 26, 2019, 10:50
Share articles

Anand Mahindra, vice chairman and owner of Mahindra & Mahindra (M&M)

Korea Development Bank (KDB) is reportedly considering extending the maturity of its 90 billion won loan to SsangYong Motor, which is suffering from severe financial trouble due to sluggish sales.

If KDB agrees to extend the maturity of the loan, which matures next year, SsangYong Motor will be able to receive financial support from its largest shareholder, India’s Mahindra Group. The Indian business group promised to provide additional financial support, including a capital increase, on condition that KDB extends the loan maturity.

In September, SsangYong Motor lagged behind Mercedes-Benz in sales, prompting auto industry insiders to predict that it will not be able to make a comeback. Sales of Ssangyong’s small sport utility vehicle (SUV) Tivoli, which were gaining popularity, dropped sharply as soon as its rival models were released.

SsangYong's situation is not good. The automaker has fallen into a deficit for 11 consecutive quarters and the deficit is on the rise. This year, its operating losses grew from 27.8 billion in the first quarter to 49.1 billion won in the second quarter and 52.2 billion won in the third quarter. Its debt ratio also swelled from 166 percent in 2016 to 190 percent in 2017, 218 percent last year and 286 percent at the end of September. In Korea, rival models such as Hyundai's Kona and Kia's Seltos hit the market, undermining the Tivoli’s base and Tivioli exports hit a 105-month low in November.

Maturing loans pose a threat to SsangYong under these circumstances. SsangYong's short-term borrowings that need to be repaid within a year amounted to 330.3 billion at the end of September, an increase of nearly 130 billion won in 9 months from 178.2 billion won at the end of 2018. If KDB extends the maturity of the 90 billion won loan due in July next year, it will ease the automaker’s burden a great deal. In addition, KDB’s decision will induce other creditor banks to follow suit.

Currently, SsangYong Motor's loans from KDB are about 190 billion won. Of them, the carmaker received 100 billion won this year for the development of electric vehicles. The problem is 90 billion won due in July next year. SsangYong Motor is planning to ask KDB to extend the maturity of the loan by presenting a plan to reduce labor costs. It has recently decided to reduce bonuses by 200 percent, cut incentives and adjust annual day-off allowances.

Of course, KDB has not yet decided to extend the maturity of the loan. But as Mahindra has promised to give additional support to SsangYong Motor on condition that it receives support from KDB, KDB’s consideration of maturity extension itself can be very encouraging news to SsangYong Motor.

Mahindra has informed Chung Il-kwon, chairman of SsangYong Motor’s labor union, that it will provide the automaker with additional support of up to 200 billion won if KDB supports SsangYong Motor. In this case, SsangYong will be able to focus on developing electric cars and other vehicles with Mahindra's financial support in 2020.

Mahindra also needs SsangYong Motor. SsangYong Motor is the company with the best technology among Mahindra Group affiliates. In order to improve the quality of automobiles to be produced by Mahindra, SsangYong Motor’s R&D must go on. If SsangYong Motor lags behind in the development of electric cars, Mahindra will also lose ground in the green car market. In terms of technology, Mahindra also appreciates SsangYong's advanced corporate culture so that excellent Mahindra employees are sent to SsangYong Motor every year for training and education.

Car industry experts predict that KDB will not let SsangYong Motor go under as it is a car company hiring many employees by creating many jobs. The ailing carmaker has more than 5,000 directly hired workers and creates tens of thousands of jobs when including those at its partners and suppliers.