Mahindra runs out of patience; eyes investors for SsangYong bailout

Domestic utility vehicle maker Mahindra and Mahindra on Friday said it had rejected the demand to inject equity worth 500 billion KRW (Rs 3,085.6 crore) in its loss-making South Korean subsidiary SsangYong Motor Company. Mahindra would instead consider a one-time infusion of 40 billion KRW (Rs 243 crore) over the next three months to ensure continuity of business operations at the company and said it would help the company find new investors.

The board of directors at Mahindra took stock of the financial situation of the company in the wake of the coronavirus pandemic and the 21-day lockdown in India before rejecting the demand for grants from the Korean firm. "The request from the management and labour union of SsangYong Motor Company (SYMC) for a fresh injection of equity from M&M to help the company fund 500 billion KRW (Rs 3,085.6 crore) of requirements over the next three years, was considered by the Board," the company said in a statement.

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 "After lengthy deliberation given the current and projected cash flows, the M&M board decided that M&M will not be able to inject any fresh equity into SYMC and has urged SYMC to find alternate sources of funding. However, to enable SYMC to have continuity of business operations, whilst they are exploring alternate sources of funding, the board has authorised the M&M management to consider a special one-time infusion of up to 40 billion KRW (Rs 243 crore) over the next three months," the statement added.

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Mahindra had acquired SsangYong in 2013 picking up a 70 per cent stake for Rs 2,105 crore. Mahindra currently holds 74.65 per cent stake in the company. It has not been able to turn around the company despite repeated attempts. Losses at the Korean firm more than doubled in the third quarter of fiscal 2020 at 105.2 billion won (Rs 676.4 crore), which was its worst quarterly performance since the global meltdown of 2008. SsangYong has been losing money for 11 straight quarters now.

SsangYong would continue to enjoy Capex-free access to Mahindra's new product platforms while technology programmes to reduce its Capex needs and material cost reduction. "The Board hoped that the employees and management at SYMC understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision," the company statement said. "The board has also initiated several measures to tighten capital allocation norms and ensure that M&M remains strong through the current crisis and beyond," the statement added.

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