Mahindra & Mahindra: Global cos eyeing SsangYong stake as Mahindra looking to scale down role in loss-making biz
Among potential acquirers are Renault Samsung Motors (RSM) and Mahindra partner Ford Motor Co. However, the US company denied it’s seeking any stake in the unit. “Ford is not in discussion to buy a stake in Ssangyong. We categorically deny and request you to keep Ford out of the speculations as it impacts operations overseas,” the company said in an email. RSM didn’t respond to emails sent on Sunday. There is no guarantee that the ongoing talks will lead to a definitive deal, said the people cited above.
Mahindra acquired a bankrupt SsangYong in 2010 and hasn’t been able to turn it around despite several attempts. The Mahindra board moved a special resolution at its annual general meeting on Friday to reduce its shareholding in SsangYong to less than 50% in one shot or in phases, paving the way for a new investor. The company will seek shareholder approval through postal ballot for the reduction in stake “and/or for cessation/ extinguishment/ change/ modification of control of the company over SYMC, in full or in part at one time or over time,” it said in a regulatory filing.
However, Mahindra may only be allowed to offload a 26% stake out of its total 74.65% holding as the South Korean government may bar it from exiting completely. The government may also insist on a small buy-in, said the people cited above. The exact financial details of the potential transaction are still not clear. “SsangYong is in dialogue with investors and we would announce the status of these dialogues at an appropriate time,” Mahindra managing director Pawan Goenka told ET.
The Mahindra board had rejected a proposal to inject fresh equity into the unit in April after the management and labour union of SYMC sought funding of 500 billion won (Rs3,300 crore) from the Indian parent as emergency funding to restructure the business over the next three years. According to Mahindra’s FY20 annual report, investment in SYMC stood at Rs 2,450 crore at the end of March. SsangYong Motor said in its quarterly report that at the end of March that it had 390 billion won ($322.4 million) in short-term loans to be repaid in less than a year, out of which 167 billion won is from foreign banks?JP Morgan, BNP Paribas and Bank of America. These banks had said that if Mahindra cedes a controlling stake, refinancing of loans would be jeopardised with the buyer having to clear all outstanding dues before taking control.
In the face of rising debt, SsangYong sold a service centre in Seoul to an asset management company, raising $147 million. Korea Development Bank has refused any immediate assistance to SsangYong, preferring to fund companies affected by Covid. Recently, SsangYong’s external auditor refused to sign its financial statement, citing discrepancies and its “doubtful existence” as the automaker posted a 98.6 billion won ($82.3 million) operating loss in the first quarter of 2020, and is likely to sink deeper into the red in the second quarter. “This is the final chance for Mahindra to exit, after which SsangYong may file for bankruptcy,” said a person in the know.
SsangYong went into bankruptcy in 2009 after China’s SAIC had bought it for $500 million in 2004. ET reported July 27 that investment banks Samsung Securities and Rothschild have been brought on board to help find a suitor for SsangYong. Feelers had been sent to China’s Geely and BYD, offering them the prospect of a foothold in the South Korean market, it said. Even Ford and Vietnam’s Vinfast were expected to be in fray. But given global anti-Chinese sentiment, such a strategic tie-up is fraught with risk, analysts said.
Ford has an existing business relationship with Mahindra. They signed an agreement to explore possible cooperation on products, technology and distribution in 2017. The two formed a 51:49 joint venture two years later to develop, market and distribute Ford-branded vehicles in the country. Chung Il-kwon, chairman of SsangYong Motor’s labour union, had said earlier this year that the company was looking to export vehicles under the Ford brand to increase sales. Ford senior executives were scheduled to visit the Pyeongtaek plant to discuss the plan, he had said. Together, they could forge a three-way association, with the Indian tractor-to-utility vehicles maker periodically paring down its stake, said the people cited above.
“What Mahindra set out to get from SsangYong’s acquisition, in terms of products and technology hasn’t worked out. Mahindra’s market share was 55% in SUVs in 2010 and today stands at 25%,” said VG Ramakrishnan, managing partner at Avanteum Partners. Samsung is expected to unload its 19.9% stake in Renault Samsung Motors after the trademark contract between the conglomerate and the French automotive company ends this month. Without a two-year renewal, the joint venture has to remove ‘Samsung’ from the company name after a two-year grace period. Renault Samsung Motors was established in 2000 when Renault Group acquired Samsung Motors. The company however saw sales drop 16.5% and operating profit plummet 40.4% last year from 2018.
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