Mahindra announced fresh investment in Ssangyong Motor in February only to cancel in in April citing the COVID-19 crisis
Back in 2010, it was Mahindra who had SsangYong from going bankrupt by buying majority stake. Now 10 years later, under the ownership of Mahindra, the South Korean SUV specialist SsangYong Motor Company has filed for bankruptcy.
SsangYong has been struggling to stay financial viable despite investing heavily on new generation products. The brand simply lacks recognition on a global scale (like it compatriots Hyundai and Kia) which is required to bring in adequate sales volumes.
SsangYong Motor files for receivership and bankruptcy
After failing to reach an agreement with foreign banks to extend the loan repayment deadlines, SsangYong Motor Co. has applied for court receivership called as Autonomous Restructuring Support (ARS) to face the expected disruption in its operations. The company also filed an application with Seoul Bankruptcy Court for commencement of rehabilitation procedure under Korea’s Debtor Rehabilitation and Bankruptcy Act.
Parent company Mahindra revealed last week that its Korean subsidiary defaulted on loan repayments of 60 billion KRW (around INR 408 cr) to JP Morgan Chase Bank, 10 billion KRW (around INR 68 cr) to BNP Paribas and around 30 billion KRW (around INR 204 cr) to Bank of America. The total loan amounts to around 100 billion KRW or around INR 608 cr.
If the court approves ARS which is currently under review, it will facilitate the recovery of funds for creditors while trying to help the company avoid filing for bankruptcy. In simpler words, SsangYong Motor is about to witness a possible restructuring in such a way to pay off its debts while maintaining its operational status to turn profitable. The autonomous restructuring support program which SsangYong has entered into allows it a breathing space of three months to negotiate with stakeholders and creditors to find a resolution such as equity and debt financing.
Mahindra looking for SsangYong disinvestment
It is no secret that Mahindra has been scouting for buyers to off-load its loss-making Korean subsidiary. According to a statement issued my South Korea’s trade ministry, the negotiations of SsangYong sale deal will progress regardless of the receivership filing.
Mahindra currently owns 74.65% of Ssangyong Motor Co. In February 2020, the Indian UV major proposed to invest INR 2,800 in SsangYong to empower its strategy to become profitable by 2022. However, after the global pandemic’s real magnitude came to light, Mahindra’s board backtracked its investment plan in April and proposed to sell its stake instead.
Under Mahindra’s ownership, SsangYong modernized its design language, equipped itself with modern technologies and product platforms, and came up with appealing SUVs across different segments. However, the improved product lineup did not automatically result in expected sales increase as the company suffered from weak brand image.
With the receivership and cancellation of fresh investment from Mahindra, the Korean automaker’s future remains uncertain. A massive restructuring and a new buyer looks like the way to go but it remains to be seen if things fall into place. In related news, Mahindra has also proposed to shut down Italy-based Pininfarina Engineering as it looks to exit loss-making businesses.