Mahindra Seeking to Give up Control of SsangYong

Pawan Goenka, managing director of Mahindra & Mahindra of India

SsangYong Motor's Indian parent company Mahindra & Mahindra has reaffirmed its intention to give up control of its ailing Korean subsidiary.

"Ssangyong Motor needs a new investor,” said Pawan Goenka, managing director of Mahindra & Mahindra and chairman of the board of directors of SsangYong Motor, on June 13. “We are working with the company to see if we can secure investment,” he was quoted as saying by Reuters.

Goenka’s remark was no surprise as the Indian company announced in early April that it would withdraw its plan to invest 230 billion won in SsangYong Motor, saying that it would support SsangYong management to find a new investor. At the time, Goenka said in a telephone call with the leader of the Ssangyong Motor labor union, "We will actively look for a new investor for SsangYong Motor and do our best as a major shareholder even if we become the second largest shareholder."

Mahindra acquired Ssangyong in 2011 and holds a 75 percent stake.

Goenka’s latest remarks came as the Indian company reported loss in the first quarter of 2020. Mahindra reported a consolidated net loss of 19.55 billion rupees ($258 million), compared with a net profit a year ago, as it booked a writedown on its investment in SsangYong and other international units.

However, it remains to be seen whether Mahindra will be able to find a new investor for SsangYong. Recently, the global auto industry is facing a major crisis due to the COVID-19 outbreak. Even before the beginning of the COVID-19 crisis, global automakers had invested a huge amount of money in preparing for the future mobility industry, including electric vehicles and autonomous vehicles. It is unrealistic for an advanced company to take over SsangYong which lacks a technological appeal. In the end, SsangYong Motor will have to find an investor among automakers in emerging economies, but at the moment, no candidate has emerged.

In addition, SsangYong received loans from foreign banks on condition that Mahindra maintains a 51 percent or more stake in SsangYong. This will also hinder finding a new investor. JP Morgan, BNP Paribas and the Bank of America lent 206.8 billion won in facility funds to SsangYong, on condition that Mahindra have a stake in SsangYong exceeding 51 percent. They lent money based on Mahindra’s credit rating. Amid worsening situations at SsangYong, foreign banks are likely to withdraw their loans immediately if Mahindra’s equity share is lowered.

Under these circumstances, the Korean government and creditors have plenty to ponder to keep SsangYong afloat. SsangYong hopes to receive 200 billion won in support funds from the key industry stabilization fund but the hope seems vanishing. This is because the government is sticking to the principle of supporting companies suffering from the COVID-19 crisis first. SsangYong posted losses in 13 consecutive quarters until the first quarter of 2020. It means the company’s financial difficulties started long before the beginning of the COVID-19 pandemic.

SsangYong is also wishing to receive support from its creditor Korea Development Bank (KDB). It is required to repay KDB loans that will mature on July 6 (70 billion won) and 19 (20 billion won), respectively. The ailing automaker plans to request an extension of the loans’ maturity soon. SsangYong's loans are likely to be extended as state-run banks and commercial banks are offering extended maturity in the face of the COVID-19 situation.

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