Will the Korean government bailout cash strapped Ssangyong?, Auto News, ET Auto

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Ssangyong will prefer Korean investors, now that M&M has confirmed they wont be injecting anything fresh into the Korean company. The current imbroglio with regard to Mahindra controlled Ssangyong Motors could be in its last leg. Sources in Korea indicated that the country’s government may play an active part in helping the cash strapped Korean auto company come out of its current crisis.

Indications are that Ssangyong is in desperate need to find an investor to pick up a stake in its company, with two leading Korean automakers rumoured to be in talks with them which could meet approval from the Korean government due to its cultural fit. Sources indicate that if the process of finding an investor does not fructify soon, the last option for Ssangyong would be to file for bankruptcy.

Sources mention that the Korean companies which may be in talks with Ssangyong are Hyundai and Kia, both of whom recently denied this development. The process of looking for an investor was initiated 3-4 months back and a number of European company names were doing the rounds. There were indications that it could even be Ford who could come in as a partner which would not only ease synergy issues but also help Ssangyong to get a toehold in the competitive US market which has eluded them and parent company, Mahindra.

Ssangyong will prefer Korean investors, now that M&M has confirmed they wont be injecting anything fresh into the Korean company. The choices are fairly limited I would say. Any Global OEM would consider investing broadly under 2 conditions. (1) there is an opportunity for portfolio expansion across a new customer segment and (2) access to new technologies which the investing OEM does not have such as EVs, autonomous vehicles etc etc.. So unless there is a government intervention, its going to be very tough for Ssangyong, says Kaushik Madhavan, Vice President, Mobility Practice, Frost & Sullivan.

With the company seeing poor sales over the last couple of years and Mahindra unable to turnaround the company in spite of ten years of management, a stake sale could come at a very healthy valuation price. Given the current global pandemic and the non reluctance of the company’s board to infuse any fresh long term funds, Mahindra may just be ready to sell at a decent price.

The company’s labor and management is understood to have reached out for help from the government and Korea Development Bank, but is yet to receive any response. Ssangyong needs to stay afloat and its short-term borrowings due to mature this year stand at 254 billion won, much more than 40 billion won that was recently injected by Mahindra, SsangYong’s parent company in India. However it’s immediate concern is to repay 90 billion won to Korea Development Bank this July.

The company recently signed an annual wage deal with its union, to put off the annual wage increase for the company over the next one year.

The wage deal assumes significance amid the rising impact of the coronavirus outbreak as well as the Korean car industry going through one of its worst phases. Sales have plummeted to an all-time low and it is during these times that a stable labour-management relationship is seen as critical to put the company back on track. SsangYong sealed a wage deal with the union for the 11th consecutive year without strikes since 2010.

In 2019, SsangYong’s annual sales fell 6.5% to 132799 units from 141995 units a year earlier due to lower demand. During the current period of January to March 2020, sales for the company have fallen 31% to 24139 units from 34851 during the same period in 2019. SsangYong’s line up of vehicles include its flagship G4 Rexton, Tivoli, Korando and Rexton Sports.

Amidst the ongoing Covid 19 pandemic which has hit the auto industry hard, the Mahindra board earlier this month decided to shelve its plans to infuse $400 million equity in SsangYong to meet its next three year plan. This is in stark contrast to the announcements the company had made to this effect a month before. While the official reason given has been the ongoing global uncertainty, it is no secret that the Korean automaker is proving to be a high maintenance asset for Mahindra. Interestingly the decision to not extend the finance of 500 billion KRW was taken by the Mahindra board, which now has a couple of new faces.

SsangYong Motor Company and its labour union had wanted Mahindra to inject equity to fund its 500 billion KRW (USD 406M) of requirements over the next three years. Post this decision, the fate of Ssangyong hangs in balance and it will need to raise funds urgently. In February, M&M had announced a fund infusion of 450-500 billion Korean Won (₹2,700-3,000 crore) and work on a three-year plan to bring its South Korean subsidiary SsangYong Motor Company back to profitability by 2022. SsangYong had posted its highest ever yearly loss of 341 billion Won in 2019.

M&M had paid Rs 2,100 crore ($463 million) for the purchase of the Korean car maker a decade ago. But each passing year has been tough with falling sales numbers and negative financial records. .

Mahindra currently holds nearly 75% stake in Ssangyong. The maker of Scorpio and XUV brand of vehicles has invested more than $110 million since it first acquired a controlling stake in the loss-making firm nearly a decade ago and are today finding it a hard pill to swallow.

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