industry

Regulatory hurdles, valuation issues delays M&M’s exit from Ssangyong


Mumbai: Regulatory hurdles and valuation issues are hobbling a change of control in SsangYong Motors while Indian vehicle maker Mahindra & Mahindra is battling against time to revive the ailing Korean venture.

Informed sources said Mahindra wants to completely exit, while Haah wants to come in as a strategic investor. This has led to valuation issues with Haah Automotive and that has come in the way of concluding the stake sale as yet.

“We have not been able to agree to certain financial terms with Haah as yet,” said one person in the know.

The Mahindra Ssangyong combine may have to resort to a one-time write-off of foreign investment, which could run into regulatory hurdles, people in the know said.

“If the divestment of an overseas investment by an Indian company results in a write-off, Reserve Bank of India (RBI) permits such divestment only in limited circumstances,” says Sudip Mahapatra, partner at S&R Associates.

“Depending on the circumstances, RBI can grant exemption on a case-by-case basis. However, RBI might be concerned that such an exemption could set a precedent for other similar cases, Mahapatra added.

Mahindra currently owns 74.65% of cash trapped in Ssangyong. Samsung Securities and its global partner Rothschild have been brought on board to help find a suitor for SsangYong.

While negotiations are still going on, it is getting tougher with each passing day as bankruptcy is looming large on Ssangyong, said the person quoted above.

Currently, this is the only investor that Ssangyong is in discussions with and if this falls through, Ssangyong will have to go back to the drawing board and start to look for a new investor.

To sustain the operation, SsangYong Motor has managed to sell one of its service centres located in the Guro district in Seoul to an asset management company, PIA Investment Management.

Through this sale it raised close to $147 million for the Korean auto major that faces severe liquidity issues, according to reports in a section of Korean media.

Since July of 2020, SsangYong has witnessed month-on-month improvement in its sales, both in the domestic market as well as exports. In the first 10 months of 2020, the company had cumulative sales of about 85000 units with volumes down by about 24%.

The company was able to record sales increase for three consecutive quarters and delivered highest performance in Q3 thanks to diversified sales channel and non-face-to-face marketing and it is forecasting for a better Q4 both in terms of sales and profits on back of new models like Tivoli Air and All new Rexton.

SYMC was able to reduce its operating losses in Q3 with sales of 25,350 vehicles. The revenue for Q3 stood at 705.7 bn won, and operating loss at 93.2 bn won.

An email sent to Mahindra & Mahindra did not elicit any response.

Haah Automotive responded to an email query saying “We do not comment on rumours and speculation.”

With sales seeing some pick-up lately , Ssangyong is managing it’s working capital requirements in the interim. It’s in desperate need of funds to stay afloat after parent company Mahindra decided to let go of its control.

In September Haah Automotive made an “initial” offer of $258 million for a substantial stake in SsangYong Motors.

Mahindra paid Rs 2,100 crore ($463 million) for the purchase of the Korean car maker a decade ago and invested over $110 million.

Haah had also sought an extension of the loan repayments and their terms might not be acceptable to lenders.

Banks like JPMorgan, BNP Paribas, Bank of America, among others, have a 260 mn dollar (306 billion won) exposure.

Banking sources told ET that while the initial amount will be used to seek extension of SsangYong’s debt repayment, the lenders have made it clear that the incoming investor in the company will have to clear the dues upfront if Mahindra cedes control.

Haah Automotive Holdings, purchases various vehicle assemblies from Chery which, along with parts sourced in North America, are assembled in an American factory where the final vehicles are produced. These products are sold under the brand name VANTAS in North America. Informed sources say the aim is to close the deal as soon as possible so that vehicle exports to North America can start , allowing SsangYong Motor to make an inroad into the US market.

Mahindra’s board moved a special resolution at its AGM to reduce its shareholding in SsangYong to less than 50%, an indication of a new investor coming in rather than a complete sell out.

The board last April rejected a Rs 3300 crore turnaround plan for SsangYong, pushing the Korean car maker into deep financial distress.





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