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India’s Mahindra Group Scratches Off Support Plan for SsangYong Motor
SsangYong's Survival in Question
India’s Mahindra Group Scratches Off Support Plan for SsangYong Motor
  • By Michael Herh
  • April 6, 2020, 09:20
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Mahindra Group has withdrawn a 230 billion won support plan for SsangYong Motor.

India's Mahindra Group scratched off a 230 billion won support plan for SsangYong Motor, its struggling Korean subsidiary, on April 3 (local time). This reminded the domestic business community of China’s Shanghai Motor in 2008. SsangYong Motor entered a workout in 1999. Shanghai Motor acquired it for 590 billion won (a 48.9 percent stake) in 2004. But it withdrew from SsangYong Motor when the carmaker fell into a liquidity crisis due to an economic downturn and sluggish sales. Shanghai Motor did not keep its promise to address SsangYong Motor’s liquidity problem. This is why some Korean auto industry experts say that Mahindra may actually give up on SsangYong.

SsangYong Motor should manage to stay afloat with 40 billion won, which will be injected into it over three months. However, its urgent issue is to repay a debt of 90 billion won to Korea Development Bank which falls due this July. Although SsangYyong Motor says it will raise funds for new investments, it is a big challenge to find a new investor in the carmaker in the ongoing COVID-19 crisis.

Mahindra decided to dump a plan to invest 230 billion won and provide only 40 billion won in temporary operating funds. Mahindra initially sought to turn SsangYong Motor into a profitable company by 2022 by combining its own investment, Ssangyong's self-help efforts, and support from Korea Development Bank. But now many experts say that the plan is a long gone notion. Mahindra wants SsangYong Motor to get on its feet without receiving help from the outside, but it is a tall order for SsangYong Motors, which can hardly stay afloat with not many valuable assets to sell and a low credit rating,


Mahindra's 40 billion won is less than one tenth of SsangYong Motor’s annual labor cost. For Ssangyong, which has posted a deficit for 12 consecutive quarters, it is difficult to stand three months with 40 billion won. Of course, the carmaker can continue to eke out a scanty existence with money from car sales. But this idea can hardly work out now as the novel coronavirus fiasco has pulled down car sales a great deal. SsangYong Motor's sales in March fell 29 percent on year.

In addition, short-term borrowings are coming due. Korea Development Bank and SsangYong Motors are scheduled to discuss the extension of the maturity of the short-term borrowings in June based on its business results until May. At this point, SsangYong Motor has no choice but to fully follow a decision to be made by the bank. Whether the will extend the deadline of the maturity remains to be seen. Unless the bank extends the deadline, SsangYong is highly likely to face a bankruptcy crisis.

Even if bank gives a maturity extension, SsanngYong Motor’s nightmare will hardly come to an end. Continuing deficits threaten the automaker’s existence. Previously, SsangYong Motor's auditor, KPMG Samjong Accounting Corp., said in a report in 2019 that the accounting firm was skeptical about the carmaker's ability to run normally as a company.

SsangYong Motor's operating profit has been in the red for three years in a row. The carmaker posted 65.2 billion won in deficits in 2017, 64.2 billion won in 2018, and 281.9 billion won in 2019. Its debt ratio is also a big problem. The debt ratio, which was around 190.01 percent in 2017, soared to 397.4 percent in 2019. Its capital erosion rate also rose to 46.2 percent. Another problem is that its sales have dropped. After hitting 109,140 units in sales in 2018, it fell 1.2 percent to 107,789 in 2019. As Ssangyong Motor has no plan to launch a new model in the near future, its sales are expected not to rebound. So the automaker will hardly avoid suffering a deficit this year either, car industry watchers say.

In the long run, it holds the key whether largest shareholder Mahindra will make additional investments or not. Ssangyong Motor's labor and management are expecting a great deal of additional investment from Mahindra. "Mahindra did not express any intention to withdraw from Ssangyong Motor," the labor and management said. They said that they will continue to make efforts until Mahindra further invest in the carmaker. Ssangyong Motor held an emergency meeting of executives on April 4. “Despite a trouble in Mahindra’s new financial support, we will revamp our management system,” they said on April 5. “We will cope with short-term liquidity woes by securing cash such as selling off non-essential assets including Busan Logistics Center.”

However, experts have different opinions about Mahindra's true intention regarding the 40 billion won support. The union, management and the Korean government believe that Mahindra had an intention to run Ssangyong Motor and paid out 40 billion won of 230 billion won in installments. “I don't think Mahindra is going to give up Ssangyong Motor,” a Korean government explained. “I understand that it was difficult to repay the entire amount of 230 billion won due to concerns about liquidity stemming from the COVID-19 incident.”

Some experts believe that Mahindra began to put political pressure on the Korean political world ahead of the general election to be held in the middle of April. Mahindra is about trying to receive support by highlighting the Ssangyong Motor issue with about 5,000 jobs at stake, they say.