Amidst growing speculation that HAAH Automotive Holdings, a U.S. automobile distributor is in the final process of preparing a binding bid for SsangYong Motors early next month, the deal is likely to give China’s Chery Automobiles an entry into the troubled Korean automaker.
It is no secret that Haah is partially owned by China’s automobile company Chery, who are scouting for possible automotive assets globally.
Sources close to the development told ET that HAAH may not have enough money to become a major shareholder of SsangYong with only 23 billion won in annual sales, with SsangYong needing 500 billion won to normalize its operations. The arrangement via Haah would suit Chery quite well as they would get in the required funds, over a period of time.
ET reached out to Haah on a potential bid for SsangYong and while the company did not deny any development, a spokesperson mentioned that they do not comment on rumours and speculation.
Pawan Goenka, MD, M&M has mentioned at the Q1 results conference, “SsangYong is in dialogue with investors and we would announce the status of these dialogues at an appropriate time”.
Mahindra’s board moved a special resolution at its AGM to reduce its shareholding in SsangYong to less than 50%, an indication of a new investor coming in rather than a complete sell out. The board last April rejected a Rs 3300 crore turnaround plan for SsangYong, pushing the Korean car maker into deep financial insecurities.
Some speculate that Chery may enter the U.S. auto market via HAAH Automotive, which is partially owned by Chery, by taking advantage of the Korea-U.S. FTA. The Korea-U.S. FTA was also cited as a major factor when Chinese automakers Geely and BYD made moves to take over SsangYong Motor.
“The Chinese are on the lookout for stressed assets “, said Mahantesh Sabarad, Head, Retail Research, SBI caps Securities, adding that the shareholder resolution was the first step to an impending exit. “Chinese carmakers, which are kept in check by the U.S. government, seem to be considering acquiring SsangYong as a detour to go overseas,” said an industry expert.
Haah is a car distributor based in Irvine, California and is planning to distribute Chinese vehicles in the North American market especially the company’s SUV Vantas’ in the US and Canada by end next year. HAAH could be considering selling SsangYong models in the U.S. market by making some equity investments.
Foreign banks servicing SsangYong’s loans have informed that if Mahindra cedes a controlling stake, it would jeopardise refinancing of its loans with the buyer having to clear all outstanding dues before taking control. As of end March, SsangYong has USD 322.4 million short-term loans, to be repaid before a year with 167 billion won from JP Morgan, BNP Paribas and Bank of America.
Mahindra had prepared a proposal earlier this year to infuse 230 billion won in SsangYong, but it’s board rejected the proposal last April, instead infusing just 40 billion won, enough to run operations for three months. In the face of rising debt, SsangYong sold one of its service centres located in the Guro district in Seoul to an asset management company, raising $147 million.
Recently, SsangYong’s external auditor refused to sign its financial statement, citing discrepancies and its “doubtful existence” even as the automaker posted a 98.6 billion won ($82.3 million) operating loss in the first quarter of 2020, and is likely to sink deeper into the red in the second quarter.
