Brinkmanship at Play
Mahindra & Mahindra applied for SsangYong Motor’s rehabilitation on Dec. 21. This sudden application is interpreted as brinkmanship based on the assumption that the Moon Jae-in administration, whose top priorities include stable employment, will not let more than 5,000 unionized workers walk out to the street.
SsangYong’s plant in Pyeongtaek almost closed on Dec. 24 and the same will occur on Dec. 28. This is because talks with partner firms failed and parts supply is not smooth. The discontinuation of production was determined at the Dec. 23 board meeting by Mahindra & Mahindra, which owns 74.65 percent of SsangYong, stressing the inevitability of the discontinuation.
In becoming the largest shareholder, Mahindra & Mahindra planned to invest 522.8 billion won in SsangYong to turn it black by 2022. Specifically, it was going to pay approximately 230 billion won out of its own pocket with the Korea Development Bank (KDB) and so on preparing about 270 billion won. Then, COVID-19 broke out and Mahindra & Mahindra retracted the plan on its conclusion that SsangYong cannot get back to normal.
Mahindra & Mahindra’s change in stance has to do with the facts that SsangYong must repay no less than 157.5 billion won to domestic and foreign financial institutions with its business conditions getting worse and worse, HAAH Automotive has emerged as a potential acquirer, and the current South Korean government is focusing on job creation and employment stability. The California-based automotive distributor completed its due diligence on SsangYong before the rehab application on Dec. 21.
Mahindra & Mahindra applied for autonomous restructuring support (ARS) along with the rehab. It is to postpone rehab initiation by up to three months based on the consent of creditors. Once the ARS is accepted, SsangYong can discuss restructuring with creditors while doing business as usual. In this issue, the main creditor bank is the KDB and the other creditors include Woori Bank, JP Morgan, BNP Paribas and BofA Securities.
The problem is that about 10,000 SsangYong executives and staff members would be in jeopardy if Mahindra & Mahindra’s plan for debt maturity extension and disposal within three months failed. This is why the political community of Pyeongtaek is calling for the KDB to play a bigger role as a state-owned bank by extending the maturity of its lending to SsangYong and making an additional investment in it in order to protect jobs and the regional economy. In that city, the number of workers directly and indirectly related to SsangYong and their family members amounts to 600,000 or so.