SsangYong receives rescue financing

SsangYong Motor has approved a 40 billion won ($33 million) lifeline from Mahindra & Mahindra, its Mumbai, India-based parent.

The funds will initially be in the form of a loan and will eventually be converted into equity in the Korea Exchange-listed company.

The board of the Korean unit, which is 74.65 percent owned by Mahindra & Mahindra, voted in an extraordinary meeting Friday to use the funds from the Indian automaker to keep the troubled Korean automaker operating, SsangYong Motor said Sunday.

“The emergency fund will help SsangYong Motor stay in business this year,” said SsangYong Motor spokesperson Kwak Yong-sub reached by phone Sunday. “It also shows that Mahindra & Mahindra is committed to the Korean market, and it will end speculation that the company will exit Korea.”

SsangYong Motor was initially expected to receive a 230 billion won rescue from Mahindra & Mahindra based on the fact that the Korean unit will need at least 500 billion won in the next three years.

Three months ago, Mahindra & Mahindra Managing Director Pawan Goenka visited Korea and had discussions with the state-run Korea Development Bank (KDB), SsangYong Motor’s main creditor, and mentioned the possible need for help in rehabilitating SsangYong Motor.

But the Indian company’s board voted earlier to abandon the 230 billion won plan as the parent is facing business difficulties of its own as the pandemic reduces demand. Mahindra & Mahindra calculates that SsangYong Motor needs 500 billion won over three years to return to profit.

SsangYong Motor has been posting net losses for 12 consecutive quarters. Amid the coronavirus outbreak, the company sold 30.7 percent fewer vehicles in the first three months this year compared to a year earlier.

SsangYong Motor does not have plans for new models this year and is solely focused on improving its financial structure while releasing modified versions of its current lineup to the market.

In addition to the lifeline, Mahindra & Mahindra promised to find ways of attracting more investors to support the subsidiary.

It noted that the 40 billion won in funding approved Friday will not help the company’s long-term prospects.

The company needs an estimated 50 billion won to maintain itself every month and has a 90 billion won loan from the KDB maturing in July.

According to its annual financial statement last year, SsangYong Motor had a total of 2 trillion won in assets and 1.61 trillion won in debt.

“The 40 billion won will help us through this year, for this month at least,” Kwak said. “We would need more funds in the future for SsangYong Motor to return to black, and that additional amount will be discussed later when Mahindra & Mahindra gets through the coronavirus pandemic and is stabilized.”

SsangYong Motor CEO Yea Byung-tae said in a message to employees earlier this month that the company will ask for additional funds from the government and the financial sector to overcome the crisis.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]