Mahindra could confirm its SsangYong stake sale next week [Update]

According to a new ET Auto report, Korean Development Bank has come to the rescue for SsangYong, offering additional funds to the cash-strapped automaker. The state-run organisation puts a condition for that financial aid, though, that Mahindra continues as the majority stakeholder in the company. The Indian automaker is trying to completely exit but we already know that’s proving difficult in the current circumstances.

A report from The Economic Times on New Year’s said that Mahindra may announce the buyer of a chunk of its stake in SsangYong Motor within a few days. The company would sign a term sheet for sale, although that document wouldn’t mark the conclusion of a deal as per Dr. Pawan Goenka, MD & CEO, Mahindra & Mahindra. USA-based HAAH Automotive is likely to be the buyer. In an update to that development, a company spokesperson now says that “the potential investor, largest creditor and SsangYong are still in dialogue.”

According to the report, Mahindra will reduce its stake in SsangYong to 30% or lower with the upcoming deal. Last month, after failing to repay loans of approximately KRW 60 billion or INR 408 crore by the deadline (14 December 2020) to lenders, SsangYong filed for court receivership with the Seoul Bankruptcy Court. It has until 28 February 2021 to free itself of the crisis, and on failing to do so, the bankruptcy court would take over its management. So, Mahindra will likely seal the deal quickly.

Last month, The Economic Times had reported that Mahindra had faced setbacks in concluding the stake sale and the revival of its South Korean company Ssangyong. The company was desperately seeking funds to stay afloat, and it was unclear how it would manage in the interim for the working capital.

ET‘s sources had said that regulatory hurdles and valuation issues were hobbling the change of control at Ssangyong, while valuation issues and financial terms primarily had stopped Mahindra and HAAH from making a deal. Though Mahindra was not able to agree to certain financial terms with HAAH, a source had told the newspaper in early November that negotiations are ongoing and that progress is being made. The person added that the deal is likely to see some kind of conclusion by December.

However, it had come to light that Mahindra wanted to exit completely while HAAH wanted to be part of it only as a strategic investor and that negotiations were getting harder by the day as the bankruptcy was looming large on the South Korean company. The report stated that Mahindra & Ssangyong might resort to a one-time write-off of foreign investment, which could be met with regulatory hurdles, and that RBI may or may not grant exemption as it could set a precedent for other such cases.

The offer HAAH made for a part of Mahindra’s SsangYong stake was lower than SsangYong Motor is willing to accept, and this had prolonged the discussion. The company had also put up a condition of extending the repayment schedule SsangYong’s debt, it was reported before. HAAH had offered $258 million for a large stake in SsangYong, according to a report from economictimes.indiatimes.com dated 21 September 2020.

SsangYong is heavily burdened with debt and had reported over a dozen consecutive quarterly operating losses last year. Its SUVs Tivoli, Korando, and Rexton have found it hard to crack the global market. Outside the lone bright spot South Korea, the company has a low presence (exports in 2019 stood at 27,446 units) and it has not produced vehicles in the world’s biggest SUV markets USA and China though it had confirmed plans to enter these countries in a meaningful way.

After BYD & Geely, Chinese company Chery Automobile considered buying a stake in the debt-ridden South Korean automaker SsangYong, South Korean news outlet pulsenews.co.kr had reported on 23 July 2020. Chery had sent an agent for due diligence to SsangYong’s Pyeongtaek plant earlier the same month. The South Korean publication had said that the agent was a representative from a company in which Chery has made an investment and went for due diligence with Samsung Securities Co. and Rothschild & Co.’s managers. SsangYong had denied the claim, though.

Ssangyong E100 electric SUV side teaser
Ssangyong’s first electric car, codenamed Ssangyong E100, is to launch in South Korea. It is based on the body of the Korando. Image Source: SsangYong

On 14 September 2020, pulsenews.co.kr had reported that American company HAAH plans to make a major investment proposal to SsangYong. Investment banker sources had told the website that the California-based company was in final talks with the South Korean brand and that HAAH wants to begin the work necessary for commencing exports of SsangYong vehicles to North America.

HAAH is in the import distribution business and Chery partially owns it. The two companies created a new auto brand called ‘Vantas’ in February 2020. Together, they plan to launch models in the USA developed using the platform of Chery’s Exeed brand, and a premium SUV is first in the queue.

A report from economictimes.indiatimes.com in August had said that HAAH might have only a fraction of the capital SsangYong needs, but Chery would provide the required additional capital. Reports say that Chery wants to make South Korea an overseas manufacturing hub for EVs. The Chinese company is holding discussions with the country’s optical filter manufacturer Nanos to set up a jointly owned manufacturing facility for FCEVs at the Saemangeum Industrial Complex, the nation’s largest industrial complex, it was reported.

Renault Samsung Motors had considered SsangYong ownership

In early August, Renault Samsung Motors had become another party interested in buying Mahindra & Mahindra’s stake in SsangYong Motor Company, as per a report from economictimes.indiatimes.com. The business publication put Ford Motor Company also in the list, but the Blue Oval formally denied the development and requested the paper to keep it out of speculation. Renault Samsung Motors didn’t comment on the matter.

Renault Samsung Motors might come as a new name to some, but it has existed for two decades now (since September 2010). Renault operates in South Korea via the JV company and owns an 80.1% stake in it. Meanwhile, Samsung is considering exiting this JV company by selling off its 19.9% stake, as per a KoreaTimes.co.kr report dated 21 July 2020. Holding 111,855,108 shares (as of 31 March 2020), Mahindra has 74.65% ownership in SsangYong. Not just Chery, several Chinese automakers have been reported to have been considering to buy Mahindra’s stake in SsangYong.

Geely, Vinfast & BYD evinced interest in Ssangyong

Previous reports have mentioned Vietnam’s VinFast as among those interested in acquiring Mahindra’s Ssangyong stake. Even though many companies are interested, completely getting rid of SsangYong may not be that easy for Mahindra. In relation to the loss-making overseas company’s overdraft borrowings from JP Morgan, BNP PARIBAS, and BOA and facility fund borrowings from JP Morgan, the Indian company is required to retain over 51% of its stake.

Vietnam-based VinFast is developing its own electric car that has been designed by Mahindra Group’s Pininfarina and is planning to launch the car in mid-2021, aimed at the US market. The new EV will make around 300 kW in its most powerful form and is expected to offer a range of 500 km (WLTP). Vinfast could easily expand its product line as it gets access to platforms and technology from Ssangyong.

Another player that was reported to be interested in SsangYong, BYD, will be launching its first electric luxury sedan in the form of BYD Han in the European market. The Han will be the first car to be powered by the company’s new advanced Blade battery pack that promises a range of up to 605 km (NEDC) in a single charge.

The Blade battery packs advanced technologies to make it one of the safest in the market. BYD is also working with Toyota in a joint venture that is called BYD Toyota EV Technology Co. Ltd. to develop BEVs that are environment friendly, safe and intelligent for the Chinese market. BYD could build up a presence in South Korea with an investment in Ssangyong.

Display: Ssangyong e-SIV concept official image