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Mahindra hurls SsangYong ultimatum at Moon gov't

SsangYong Motor Board Chairman and Mahindra & Mahindra Managing Director Pawan Goenka arrives at the Korea Development Bank on Yeouido, Jan. 16. Yonhap
SsangYong Motor Board Chairman and Mahindra & Mahindra Managing Director Pawan Goenka arrives at the Korea Development Bank on Yeouido, Jan. 16. Yonhap

By Nam Hyun-woo

SsangYong Motor CEO Yea Byung-tae
SsangYong Motor CEO Yea Byung-tae
Mahindra & Mahindra said it cannot deliver promised aid to its cash-strapped unit SsangYong Motor, in what is seen as an ultimatum to the government, demanding it to provide aid from the state coffers.

Mahindra's move is interpreted as a demand for the Moon Jae-in administration to choose between a bailout from state-run lenders or the collapse of SsangYong, which is a conundrum for the government and the ruling party wanting to avoid any job-related dent in their campaign ahead of the April 15 general election.

According to Mahindra, it held a special board meeting Friday night and decided not to inject "any fresh equity into SsangYong," urging the company to find "alternate sources of funding."

"India is under an unprecedented 21-day complete lockdown, and only emergency services are operating while, everything else is closed," Mahindra said in a statement, citing the economic fallout of the COVID-19 pandemic. "The board hopes that the employees and management at SsangYong understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision."

In January, SsangYong Motor Board Chairman and Mahindra Managing Director Pawan Goenka told the SsangYong union the company would need 500 billion won over three years for normalization, and Mahindra had the intention to inject 230 billion won ($186 million).

Citing this, Mahindra requested at least 170 billion won in aid from the state-run Korea Development Bank (KDB), adding SsangYong will secure 100 billion won by unloading assets and downsizing. The KDB has been tepid about this, saying Mahindra should fulfill its responsibility first.

While closing the window for SsangYong, however, Mahindra said it will "consider a one-time special infusion" of up to 40 billion won to SsangYong over the next three months to "help the company to continue its operation while exploring alternate sources of funding."

This is interpreted as Mahindra setting a three-month deadline, as the KDB did not show the desired response to its January request for government aid as the cost for the Moon administration's apparent intervention on the rehiring of laid-off SsangYong workers.

SsangYong launched a mass layoff in 2009 and 119 workers have staged a protest demanding their rehiring over the past 10 years. In July 2018, President Moon met Mahindra Chairman Anand Mahindra and mentioned these workers, which was soon followed by the Presidential Economic, Social and Labor Council's pledge of support for SsangYong after the company rehired them.

A SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor
A SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor

Stranded SsangYong

SsangYong Motor is making efforts to brush off concerns over its collapse after the decision and anticipation that Mahindra, which has a 74.5 percent stake in SsangYong, may abandon its subsidiary.

"Despite the setback in aid from the largest stakeholder, SsangYong will continue to make efforts to revamp its operations to secure future competitiveness and job security," SsangYong said in a statement on Sunday. "With its 40 billion won infusion, Mahindra has cleared up any suspicions of a withdrawal and has pledged its continued support for SsangYong."

The company said that it is continuing to secure cash by unloading non-core assets including its logistics center in Busan, as well as stressing it needs the 500 billion won normalization fund over the next three years, not this year.

Despite such statements, the numbers show that the company is facing daunting problems.

According to an earnings report, SsangYong's short-term debt, which is expected to be paid off within a year, stood at 254.1 billion won, while long-term debt amounted to 158.7 billion won at the end of last year. Its debt-to-equity ratio rose to 400.1 percent in 2019, up from 218.1 percent a year earlier.

The company posted a 281.9 billion won operating loss last year, up from 64.18 billion won the year before, due to weakening sales. SsangYong sold 135,235 vehicles last year, down 5.6 percent from 2018.

Along with the absence of new models, the company's exports face a grim outlook due to the global outbreak of the coronavirus. Exports for March declined 4.6 percent from a year earlier.

As various difficulties corner the carmaker, anticipations are growing that Mahindra may drop its stake in SsangYong, replicating the precedent of Shanghai Automotive Industry Corp., which is now SAIC Motor.

In 2004, SAIC acquired a 49 percent stake in SsangYong, but gave up on the stake just five years later after transferring sensitive technologies ― mostly related to SsangYong's specialty SUVs ― to launch its own SUV brand. During its control, SAIC promised a series of liquidity injections to support the cash-strapped SsangYong, but filed for court receivership, as the Korean government demanded SAIC's responsible investment into SsangYong as a prerequisite for aid.

The situation looks similar this time. Mahindra, which acquired SsangYong's controlling stake in 2011, had light commercial vehicles and agricultural tractors as the main products of its portfolio, but quickly expanded it to include SUVs since 2009.

Since its acquisition, Mahindra has injected 130 billion won into SsangYong, a relatively small amount given the development cost for a new car generally stands at between 200 billion won and 500 billion won.

"With its headquarters facing daunting difficulties, it is uncertain whether Mahindra will give the 40 billion won aid to SsangYong," an industry official said. "While SsangYong is loaded with mounting debt, there is the possibility of Mahindra abandoning its stake in SsangYong in order to avoid liability, given SsangYong's market cap remains at 220 billion won."


SsangYong Motor Board Chairman and Mahindra & Mahindra Managing Director Pawan Goenka arrives at the Korea Development Bank on Yeouido, Jan. 16. Yonhap
SsangYong Motor Board Chairman and Mahindra & Mahindra Managing Director Pawan Goenka arrives at the Korea Development Bank on Yeouido, Jan. 16. Yonhap

By Nam Hyun-woo

SsangYong Motor CEO Yea Byung-tae
SsangYong Motor CEO Yea Byung-tae
Mahindra & Mahindra said it cannot deliver promised aid to its cash-strapped unit SsangYong Motor, in what is seen as an ultimatum to the government, demanding it to provide aid from the state coffers.

Mahindra's move is interpreted as a demand for the Moon Jae-in administration to choose between a bailout from state-run lenders or the collapse of SsangYong, which is a conundrum for the government and the ruling party wanting to avoid any job-related dent in their campaign ahead of the April 15 general election.

According to Mahindra, it held a special board meeting Friday night and decided not to inject "any fresh equity into SsangYong," urging the company to find "alternate sources of funding."

"India is under an unprecedented 21-day complete lockdown, and only emergency services are operating while, everything else is closed," Mahindra said in a statement, citing the economic fallout of the COVID-19 pandemic. "The board hopes that the employees and management at SsangYong understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision."

In January, SsangYong Motor Board Chairman and Mahindra Managing Director Pawan Goenka told the SsangYong union the company would need 500 billion won over three years for normalization, and Mahindra had the intention to inject 230 billion won ($186 million).

Citing this, Mahindra requested at least 170 billion won in aid from the state-run Korea Development Bank (KDB), adding SsangYong will secure 100 billion won by unloading assets and downsizing. The KDB has been tepid about this, saying Mahindra should fulfill its responsibility first.

While closing the window for SsangYong, however, Mahindra said it will "consider a one-time special infusion" of up to 40 billion won to SsangYong over the next three months to "help the company to continue its operation while exploring alternate sources of funding."

This is interpreted as Mahindra setting a three-month deadline, as the KDB did not show the desired response to its January request for government aid as the cost for the Moon administration's apparent intervention on the rehiring of laid-off SsangYong workers.

SsangYong launched a mass layoff in 2009 and 119 workers have staged a protest demanding their rehiring over the past 10 years. In July 2018, President Moon met Mahindra Chairman Anand Mahindra and mentioned these workers, which was soon followed by the Presidential Economic, Social and Labor Council's pledge of support for SsangYong after the company rehired them.

A SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor
A SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor

Stranded SsangYong

SsangYong Motor is making efforts to brush off concerns over its collapse after the decision and anticipation that Mahindra, which has a 74.5 percent stake in SsangYong, may abandon its subsidiary.

"Despite the setback in aid from the largest stakeholder, SsangYong will continue to make efforts to revamp its operations to secure future competitiveness and job security," SsangYong said in a statement on Sunday. "With its 40 billion won infusion, Mahindra has cleared up any suspicions of a withdrawal and has pledged its continued support for SsangYong."

The company said that it is continuing to secure cash by unloading non-core assets including its logistics center in Busan, as well as stressing it needs the 500 billion won normalization fund over the next three years, not this year.

Despite such statements, the numbers show that the company is facing daunting problems.

According to an earnings report, SsangYong's short-term debt, which is expected to be paid off within a year, stood at 254.1 billion won, while long-term debt amounted to 158.7 billion won at the end of last year. Its debt-to-equity ratio rose to 400.1 percent in 2019, up from 218.1 percent a year earlier.

The company posted a 281.9 billion won operating loss last year, up from 64.18 billion won the year before, due to weakening sales. SsangYong sold 135,235 vehicles last year, down 5.6 percent from 2018.

Along with the absence of new models, the company's exports face a grim outlook due to the global outbreak of the coronavirus. Exports for March declined 4.6 percent from a year earlier.

As various difficulties corner the carmaker, anticipations are growing that Mahindra may drop its stake in SsangYong, replicating the precedent of Shanghai Automotive Industry Corp., which is now SAIC Motor.

In 2004, SAIC acquired a 49 percent stake in SsangYong, but gave up on the stake just five years later after transferring sensitive technologies ― mostly related to SsangYong's specialty SUVs ― to launch its own SUV brand. During its control, SAIC promised a series of liquidity injections to support the cash-strapped SsangYong, but filed for court receivership, as the Korean government demanded SAIC's responsible investment into SsangYong as a prerequisite for aid.

The situation looks similar this time. Mahindra, which acquired SsangYong's controlling stake in 2011, had light commercial vehicles and agricultural tractors as the main products of its portfolio, but quickly expanded it to include SUVs since 2009.

Since its acquisition, Mahindra has injected 130 billion won into SsangYong, a relatively small amount given the development cost for a new car generally stands at between 200 billion won and 500 billion won.

"With its headquarters facing daunting difficulties, it is uncertain whether Mahindra will give the 40 billion won aid to SsangYong," an industry official said. "While SsangYong is loaded with mounting debt, there is the possibility of Mahindra abandoning its stake in SsangYong in order to avoid liability, given SsangYong's market cap remains at 220 billion won."


Nam Hyun-woo namhw@koreatimes.co.kr


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