The company hopes to finalise the deal by February.
Mahindra & Mahindra (M&M) on Friday said it is in discussions with a potential investor to sell its majority stake in South Korean arm SsangYong Motor Company (SYMC) which has already filed for bankruptcy, and expects to sign a non-binding agreement next week.
The Mumbai-based auto major, which currently holds nearly 75% in the Korean firm, expects to finalise the deal by February end.
“We are in discussion with a potential investor for majority stake in SsangYong. We hope to conclude the term sheet with the investor sometime next week,” M&M Managing Director Pawan Goenka told reporters in a virtual press conference.
On December 21, the homegrown automaker had announced that SYMC has filed for bankruptcy.
The loss making firm has filed an application for commencement of rehabilitation procedure with the Seoul Bankruptcy Court under the Debtor Rehabilitation and Bankruptcy Act of South Korea.
The troubled automaker has also applied for an autonomous restructuring support (ARS) programme which is a court-designed process.
“Under ARS scheme the court gives approval to the company to find solution on its own in certain timeframe and during this time the company is managed by its management and the court doesn’t intervene,” Mr. Goenka said.
He further said: “The court has granted ARS to SYMC and the date is February 28, so we have two more months from now to conclude a deal with the investor.” If the deal gets concluded then things continue normally and if the deal doesn’t happen then SYMC goes into court receivership and its management is taken over by the court, Mr. Goenka noted.
“It will be known on March 1 and we do hope that during this two-month period we will complete the deal with the investor,” he said.
“If the deal goes through, the majority ownership will be with the new investor, Mahindra will be in minority with around 30% or less and the company will also do 25% capital reduction which is allowed under RBI regulation,” he added.
Mr. Goenka also noted that SYMC trade union is supportive of the ARS process.
He however did not name the investor with whom the negotiations were going on.
Elaborating further, Mahindra Group Deputy Managing Director and Group CFO Anish Shah said the company was optimistic that a buyer may come in and continue SsangYong operations.
“If that doesn’t happen, then the company will go through pre-package rehabilitation and there could be other options as well but in either scenario from M&M standpoint we would cease to be the majority shareholder before the end of this fiscal year,” he noted.
Commenting on financials involved with SYMC, he said :”We have around ₹980 crore of equity, we have guaranteed ₹680 crore of loans from foreign banks and 40 billion Korean wons (around ₹270 crore) that we have already put in loans. So, ₹980 crore of equity and ₹950 crore on debt.” The extent of potential write-offs will depend upon what scenario plays out, Mr. Shah added.
SYMC has reasonable amount of assets and it should be therefore able to support both the debt equity, he noted.
“M&M doesn’t have any further liability beyond these equity and debt numbers which we have shared,” Mr. Shah further said.
In December 2020, M&M had informed the bourses that SYMC has missed repayments of loans aggregating to 60 billion Korean wons (around ₹408 crore).
The Korean automaker has outstanding loans aggregating to 100 billion Korean wons (around ₹680 crore) from Seoul-based branches of JP Morgan Chase Bank, BNP Paribas and Bank of America.
Already, JP Morgan has sought repayment of loan worth 40 billion Korean wons from SYMC and the South Korean automaker has expressed its inability to pay the amount now.
In April last year, M&M board had rejected a proposal to inject any fresh equity into SYMC.
The Mumbai-based auto major had acquired the loss-making SsangYong in 2010 but has failed to turn it around since then despite several attempts.
M&M has since invested over $110 million in the loss making automaker. SsangYong has been struggling with deteriorating earnings since 2017 when it slipped into the red with a net loss of 66 billion wons as against a net profit of 58 billion wons in 2016.
In 2018, its net loss rose to 62 billion wons and then ballooned to 341 billion wons in 2019.
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