Mahindra's Stake Reduction Likely to Trigger Loan Collection
SsangYong Motor is being driven towards court receivership again 11 years after Shanghai Automotive Industry Corp. gave up its management in 2009. The ailing automaker can avoid the worst-case scenario of filing for court receivership if it attracts a new investor, but no companies are willing to invest in it as global carmakers are undertaking sweeping restructuring in the wake of the new coronavirus spread.
India's Mahindra & Mahindra, which is SsangYong Motor’s largest shareholder, has started to take steps to pull out. If Mahindra & Mahindra reduces its stake in SsangYong, foreign banks that provided loans to SsangYong on the condition that Mahindra & Mahindra maintain a 51 percent stake in the carmaker, are likely to withdraw their funds. Under these circumstances, creditors of SsangYong Motor including Korea Development Bank are mounting pressure on it to attract new investors within August.
KDB is monitoring SsangYong’s financial conditions on a daily basis as it is in a liquidity crisis. It is virtually impossible for SsangYong to resolve the crisis by selling cars. Exports are sluggish due to the COVID-19 crisis. Domestic sales recovery is slower than that of competitors due to news reports about its management crisis. In the first half of 2020, SsangYong Motor's operating loss amounted to 215.8 billion won, which is close to its total loss of 281.9 billion won in 2019. The debt ratio stood at 397.4 percent at the end of 2019, but soared to 755.6 percent in the first quarter of 2020.
Mahindra’s move to prune its stake in SsangYong Motor is making the automaker's future gloomier. "If SsangYong finds a new investor, Mahindra will give up its status as the largest shareholder," said Pawan Goenka, managing director of Mahindra. If Mahindra’s plan comes true, it is hard to rule out the possibility of foreign banks such as BNP Paribas and JP Morgan collecting their loans. These banks provided SsangYong with about 200 billion won in short-term borrowings based on Mahindra's credit. In this case, SsangYong will be pushed into bankruptcy.
SsangYong’s last hope is to attract a new investor. Although HAAH, which is known as a car distribution startup, reportedly showed interest in SsangYong and carried out due diligence on it, chances are low that it will actually make investment. "I understand that HAAH is interested in buying SsangYong's sport utility vehicles (SUVs) and selling them at low prices in the United States and other countries rather than making equity investment," an auto industry insider said. "If HAAH makes equity investment, it will do after checking whether SsangYong cars are actually competitive in overseas markets."
However, as China's Chery Automobile holds a stake in HAAH, there is still a possibility that it sells SsangYong vehicles to the U.S. and other countries by using the Korea-U.S. Free Trade Agreement, some observers say.