Mahindra & Mahindra-owned South Korean automaker SsangYong Motor filed for court receivership after defaulting on loans worth 90 billion won (Rs 602 crore) due to Korea Development Bank (KDB) on Monday. The company defaulted last week on debt worth 60 billion won (Rs 408 crore) to a consortium of banks including JP Morgan Chase, BNP Paribas and Bank of America. SsangYong applied for the commencement of rehabilitation to the Seoul Bankruptcy Court under the Debtor Rehabilitation and Bankruptcy Act of South Korea, said Mahindra, which has been seeking a suitor for the company for the past six months.
SsangYong has also applied for an Autonomous Restructuring Support (ARS) programme, a court-designed process, it said. ET was the first to report, on December 19, that SsangYong may not be able to meet its obligations to KDB and could be moving toward bankruptcy. After announcing its intent to exit, Mahindra put a Rs 3,000 crore turnaround package on hold, taking SsangYong closer to the brink, said people with knowledge of the matter. There had been indications KDB, which questioned the company’s ability to continue as a going concern, would consider extending the maturity of loans if SsangYong cleared its debt to the foreign banks.
“It appears that KDB found that liquidity-stricken SsangYong will not be eligible for support from the Basic Industry Stability Fund operated by KDB with the intention to support companies undergoing financial difficulties,” said Seungbum Lee, partner, Yulchon LLC, a South Korean law firm. “Without KDB’s extension for the maturity of the loans, SsangYong may be on track for the commencement of an insolvency proceeding.” The latest development points to the collapse of SsangYong, more than a decade after Mahindra acquired the company. More than 5,000 people directly employed by SsangYong are likely to lose their jobs, apart from those at dealers and vendors. Mahindra fell 7% on the BSE while SsangYong dropped 19% in South Korea.
Mahindra and SsangYong didn’t respond to queries. “To enter receivership, SsangYong must freeze the sale of its assets,” said Hitesh Goel, director, research, automobiles and components, Kotak Institutional Equities. “In return, under the receivership programme, the company can continue its production and negotiations with a potential buyer, albeit at a much lower valuation.” Mahindra has been in talks with US automotive distributor Haah Automotive for a stake sale but that may now be stalled, said the people cited above. The Indian company has been seeking to exit lossmaking subsidiaries and underperforming businesses to bolster return on equity.
If the court approves the ARS, SsangYong will continue to function under the supervision of its board and will negotiate with stakeholders to reach an understanding about a revival package which may include equity and debt financing and other related actions, Mahindra said. The Seoul Bankruptcy Court will determine whether to commence the restructuring process. The company has also applied for disposition of property preservation and order of comprehensive prohibition. To sustain the operation, SsangYong sold a service centre located in the Guro district in Seoul.
Source: Economic Times