Mahindra likely to sign term sheet with new SsangYong investor next week

by Mayank Dhingra 01 Jan 2021

India's Mahindra & Mahindra, which holds a majority 74.65 percent stake in Korean carmaker SsangYong Motor Company (SYMC) has divulged that it is in talks with a new investor to give up its charge of South Korea's fourth-largest carmaker, albeit one which has been struggling to cope up with the recent dynamics in the global business environment.

In a regulatory filing on December 15, M&M had reported that its subsidiary had missed repaying Rs 408 crore loan dues to JP Morgan Chase Bank after which SYMC filed for a court receivership in South Korea.

SYMC had also sought an autonomous restructuring support (ARS) programme that buys time for creditors to recover funds and prevent companies from going bankrupt. M&M says it is in discussion with a 'serious investor' to take majority control of SYMC.

"We hope to conclude the term sheet with a serious investor sometime next week as SYMC wasn't able to meet its debt obligations," announced Dr Pawan Goenka, managing director, M&M in a virtual press conference earlier today 

Without disclosing the name of the potential investor, Dr Goenka mentioned, "The term sheet will mark the commencement of the process wherein the SYMC board will have to agree on issuing shares to that party at a certain price, after which the board will seek shareholder approval to disburse SYMC shares…"

"...if everything goes as per plan, we will conclude the deal by February 28," he added.

February 28 is also the ARS deadline to conclude the deal with potential investors, failing which SYMC will practically come under court jurisdiction.

M&M to reduce stake in SsangYong to 30 percent
Given that its board has unanimously decided to not invest any further in the ailing SsangYong business, M&M will reduce its stake in SYMC to 30 percent once it finalises the new investor.

The Indian SUV maker will also reduce its capital investment in SYMC to 25 percent as per the RBI mandate.

"The narrative is about capital allocation with respect to SYMC, and the Mahindra board had decided to not invest any further into SYMC," said Anish Shah, deputy managing director and Group CFO, Mahindra Group.

"We would cease to be a majority stakeholder in SYMC by end-FY2021," Shah added.

"We have Rs 980 crore in equity, and Rs 950 crore in debt including Rs 680 crore of guaranteed loans from foreign banks. We stand behind our lenders and a lot of the loans have already been paid off," Shah concluded.

The decison to minimise its exposure in the Korean carmaker is part of M&M's Walk-Run-Fly strategy wherein the Group is on the lookout of fine scrutiny of all its global automotive investments to streamline its business in a non-conducive business ecosystem.