In 2010, Mahindra and Mahindra announced the acquisition of SsangYong Motor Corporation (SYMC) after the South Korean company filed for bankruptcy in 2009. SsangYong has now filed for bankruptcy yet again after a decade under the Mahindra’s ownership.
On Monday, SYMC started the procedure with Seoul Bankruptcy Court, Mahindra and Mahindra said in a notification to the stock exchanges. SMYC has also intimidated the Korean Stock Exchange regarding the commencement of the rehabilitation procedure. The move comes after a week when SMYC missed the December 14 deadline for repayment of about 60 billion Korean Won or about INR 480 crore to JPMorgan Chase Bank in South Korea.
M&M is not willing to pump any more money in the struggling automaker’s kitty during this difficult time. Aditya Makharia, VP, HDFC Securities said. He also added that the bankruptcy filing by a company bought by an Indian firm may sound alarming at first. But it has to be seen in the current context when many businesses have gone bankrupt due to the COVID-19 pandemic and related lockdowns around the world.
The bankruptcy filing by SMYC is unlikely to have any negative impact on the M&M in India. The Indian company took an impairment hit in March quarter of 2019-20 due to which they reported a Rs 530 crore loss during the same quarter. It was the steepest loss in 19 years. M&M also announced that they will not make any fresh investment in the South Korean manufacturer since the beginning of the current financial year.
SsangYong faces a stiff competition with the likes of Hyundai and Kia in its home market. Also, volatile export markets have also been one of the biggest challenges for the firm that been bought and sold a few times. In 1997, SYMC was sold to Daewoo Motors and in 2004, SAIC, the current owners of brands like MG bought it in 2004. Mahindra took over them in 2009 for Rs 2,100 crore.
SYMC entered the Indian market soon after the acquisition with its first vehicle – the Rexton. However, due to the low brand recognition in India, the SUV failed to do good in the market. The next-generation of the SUV was dressed as a Mahindra product and is sold as the Mahindra Alturas G4. Despite being much more affordable than the Fortuner and Endeavour, the vehicle is not doing very in the market. It should be noted that the Mahindra XUV300, which competes with the likes of Maruti Suzuki Vitara Brezza, Tata Nexon, Ford EcoSport and the likes, is also based on a SsangYong SUV but gets quite a few changes to make it Indian market-friendly.
The brand is yet again headed for court receivership and has applied for autonomous restructuring support (ARS). If the court approves ARS, then the car manufacturer will continue to function under the supervision of its board and will negotiate with stakeholders to reach an understanding about the revival package too. The package may include equity and other finance-related actions.
The Seoul Bankruptcy Court is currently reviewing the application and documents submitted by SYMC. It will then determine if the court will commence the restructuring process. In the meantime, the court will issue a comprehensive stay or a prohibition order, which will prevent SYMC’s creditors from enforcing any security claims.