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| A SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor |
By Nam Hyun-woo
Mahindra & Mahindra is facing pressure to possibly initiate an "exit strategy" from SsangYong Motor because the government here remains mum on providing additional financial assistance to the ailing Korean car manufacturer despite the Indian parent company's repeated requests to do so.
As SsangYong has been continuing its losing streak in terms of profitability, doubts have been raised on whether Mahindra has a "possible next move," while enduring its own sales and profit contractions.
"With its business at home suffering, there is no reason for Mahindra to keep the lossmaking SsangYong in its portfolio," an automobile industry official said asking for anonymity. "As the state-run bank is remaining tepid, the possibility of Mahindra unloading some of its stake in SsangYong is growing, as it will inject the new capital into the carmaker." Currently, Mahindra has a 74.65 percent stake in the local automaker.
SsangYong Motor reported 649.2 billion won ($527.8 million) in sales during the first quarter of 2020, down 30.4 percent from last year. During the same period, its operating losses widened to 98.6 billion won from 27.8 billion won, year-on-year, with net losses also rising to 193.5 billion won from 26.1 billion won.
The company's auditor and financial advisor, Samjong KPMG, refused to deliver an opinion on the carmaker's ability to run normally, which will put it on the "watch list" of the country's main bourse operator, the Korea Exchange.
"The financial status of SsangYong Motor raises meaningful doubts about its sustainability," the accounting firm said. "There are signs showing the company's ability to create cash flow has been impaired due to weakening competitiveness and the spread of COVID-19."
This deals a blow to even a glimmer of hope that SsangYong would receive financial support from state-run lenders, including the Korea Development Bank (KDB), to overcome its liquidity crisis. Currently, SsangYong has 254 billion won of liabilities due this year ― 90 billion won of which was borrowed from the KDB and is payable in July.
However, the KDB has yet to say whether it will help the carmaker by extending the due date, with an official at the bank noting, "SsangYong has not requested an extension." The carmaker said it will begin talks with the KDB on the 90 billion won debt in July.
The KDB has been showing a tepid stance on offering further support to SsangYong.
In January, SsangYong Motor Board Chairman and Mahindra Managing Director Pawan Goenka said the company would need 500 billion won over the next three years to normalize operations. At the time, Mahindra said it would inject 230 billion won of this, expressing the hope that the KDB would cover the remainder. However, in April Mahindra said it would only invest 40 billion won and urged SsangYong to "find alternate sources of funding," citing its difficulties in the Indian automobile industry.
SsangYong Motor said the promise to inject 40 billion won shows Mahindra's intention to stay committed to the Korean market, adding half of the 40 billion won had been invested as promised, and the remainder will be paid this month.
But Mahindra isn't in good in shape in terms of its finances. According to a regulatory filing by Mahindra & Mahindra and Mahindra Vehicle Manufacturers Limited, the company posted RS12,120 crores ($1.59 billion) in net sales from October to December last year, down 6 percent from a year earlier. Though the companies are yet to announce earnings for the first quarter of this year, they are expected to see a downtrend given the COVID-19 impact on the global automobile industry.
