By Nam Hyun-woo, Kim Yoo-chul
Despite repeated affirmations that SsangYong Motor is a symbol representing the solid partnership between South Korea and India, Mahindra and Mahindra (Mahindra) its largest shareholder does appear to want to unload some of its shares in the ailing South Korean automaker, possibly giving up its controlling stake.
Given President Moon Jae-in's focus on India, following a shift in traditional Korean foreign policy toward expanding ties with ASEAN bloc countries, and his counterpart Prime Minister Narendra Modi reciprocity toward Seoul, Mahindra's exit could taint the two leaders' view of and appreciation for each other.
Mahindra's repeated threats may have paid off as SsangYong's creditors are seeking a way to make the ailing automaker eligible for support from a state relief fund. The fund was set up to help businesses in backbone industries keep their workers on the payroll amid the COVID-19 pandemic.
“The government acknowledges Mahindra's clear intention to move forward with an exit strategy on SsangYong with the Indian firm searching for new investors to hand over its majority stake to,” a senior government official told The Korea Times, Sunday.
“We may extend the due date of SsangYong's debt repayment after we review the carmaker's detailed large-scale restructuring plans.”
SsangYong hopes to get the state relief because it has few options but to submit such a request for its survival. Companies in seven key areas ― automobiles, airlines, maritime, shipping, machinery and power ― were earlier designated as eligible to receive loans. The government set aside 40 trillion won for the relief fund to help th chosen firms that employ thousands of workers.
SsangYong has 254 billion won in liabilities due this year, 90 billion won of which is owed to the Korea Development Bank (KDB) and is payable in July.
But as the government mandated aid recipients must maintain jobs, restrict executive compensation and not pay shareholder dividends, even if Ssangyong receives the money, it is still uncertain that it can improve competitiveness and maintain jobs, given its overall weak brand position.
Also, direct cash support to other local automakers, which have already been hit by the COVID-19 pandemic, could be subject to international trade disputes in terms of fair competition. In 2015, Japan took South Korea to the WTO, claiming 12 trillion won given in financial support to Daewoo Shipbuilding harmed competition between shipbuilders.
“SsangYong is problematic, but the government does not want it to file for court receivership given its contribution to the local economy. If the automaker can articulate ideas for future growth and demonstrate detailed financing plans, its creditors may give it one more chance,” the official said.
SsangYong is arguing that COVID-19 is forcing Mahindra's possible exit from the company, and therefore, there is no problem with it receiving aid. But creditors and the finance ministry view SsangYong as the victim of brutal competition.
Over the weekend, Mahindra Managing Director and SsangYong Motor Chairman Pawan Goenka told reporters the automaker needed a new investor and added that the two companies would be working to see if they can secure investment.
Mahindra earlier reported a consolidated 19.55 billion rupees ($258 million) net loss so far for this year, compared with a net profit in 2019, after booking a write-down on its investment in SsangYong and other international units.
Mahindra, which owns a 74.65 percent stake in SsangYong, rescued the sports-utility vehicle maker from near-insolvency in 2010, but has struggled to revive its fortunes.
In May this year, The Korea Times was the first to report that the Indian carmaker was possibly initiating an “exit strategy” from SsangYong, citing industry officials.
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, operating losses widened to 98.6 billion won from 27.8 billion won, year-on-year, with its net loss also rising to 193.5 billion won from 26.1 billion won.
In January, 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 invest only 40 billion won and urged SsangYong to “find alternate sources of funding,” citing its difficulties in the Indian automobile industry.