The Directorial Board of Mahindra and Mahindra Ltd. presided over a special meeting on Friday, April 3, 2020, to review investment in SsangYong Motor Company (SYMC) and later released a press release stating that the board has rejected the proposal to inject any fresh equity into its loss-making Korean subsidiary. Here is what the domestic carmaker said about it and what does this really means. But before that let us give you a brief history about the Mahindra - SsangYong Alliance.
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Mahindra has acquired SsangYong Motor Company (SYMC) in 2010-11 picking up a 70 per cent stake in the ailing South Korean automaker at a total cost of 463 million US Dollars (about INR 2,105 crores). Mahindra currently holds about 74.65 per cent stake in the company and has since invested over 110 million USD.
Now talking about the reason why Mahindra rejected to invest fresh funds in SsangYong. Ever since Mahindra has acquired the loss-making SsangYong, it has tried several attempts to turn its fate but failed. SsangYong has been struggling with deteriorating earnings since 2017 when it slipped into the negative mark with a net loss of 66 billion South Korean Wons as against a net profit of 58 billion Wons in 2016. SsangYong has been losing money for 11 straight quarters now and losses of the Korean firm has more than doubled in the third quarter of the fiscal year 2020 at 105.2 billion Won (Rs. 676.4 crores), which was its worst quarterly performance since the global meltdown of 2008.
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The Board of Directors of M&M on Friday held a special meeting to review investment in SsangYong Motor Company (SYMC) and at the same time to discuss the approach to capital allocation in light of the COVID 19 impact. The Board considered the request of the management and the labour union of SYMC for a fresh injection of equity from M&M to help the company fund 500 billion Korean Won (USD 406M) of requirements over the next three years.
The Board noted that large parts of the global economy are under the shutdown and India particularly is under an unprecedented 21-day complete lockdown. After lengthy deliberation, given the current and projected cash flows, the Mahindra Board took a decision that it will not be able to inject any fresh equity into SYMC and has urged SYMC to find alternate sources of funding. However, to enable SYMC to have continuity of business operations, whilst they are exploring alternate sources of funding, the board has authorised the M&M management to consider a special one-time infusion of up to 40 billion Korean Won (Rs. 236 crores) over the next three months.
Additionally, Mahindra says it will make every effort to continue to support all other non-fund initiatives that are currently in place to help SYMC reduce Capex, save costs and secure funds. Examples of such support are:
- Capex-free access to Mahindras new platforms such as W601
- Support technology programs which would help reduce SsangYongs Capex
- Support the material cost reduction program that is currently underway
- Support SsangYong management to find new investors
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Mahindras Board says it hopes that the employees and management at SsangYong understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision.
