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| SsangYong Motor plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor |
By Nam Hyun-woo
SsangYong Motor entering court receivership now appears to be inevitable, after the troubled carmaker's largest shareholder, Mahindra & Mahindra, paid off a 30 billion won ($27.15 million) debt it owed.
This is seen as a sign that the Indian auto giant is giving up on its Korean unit, which is in an autonomous restructuring support (ARS) program giving the two time to find new investors and prevent a court-led restructuring process from beginning.
According to the Seoul Bankruptcy Court, Wednesday, Mahindra has recently repaid 30 billion owed to Bank of America. The court is currently mediating a four-way discussion between Mahindra, SsangYong, the Korea Development Bank (KDB), and U.S. vehicle importer HAAH as part of the ARS program. The KDB is leading the creditor group and HAAH is in negotiations with Mahindra to acquire a controlling stake in SsangYong.
On Dec. 15, SsangYong said it had failed to repay a combined 60 billion won in loans from Bank of America, JPMorgan Chase and BNP Paribas by the due date ― the previous day. Of them, Mahindra stood surety for the 30 billion won owed to Bank of America.
"You can say that Mahindra has underwritten SsangYong's debt," a court official said. "From a legal perspective, SsangYong has earned some room to address its financial difficulties. It is up to Mahindra whether it will demand SsangYong pay back the 30 billion won, but it seems unlikely because it is trying to sell SsangYong due to its accumulating losses."
Industry officials said this is a sign that Mahindra's attempt to hand over SsangYong to HAAH under the ARS program is collapsing, which will result in SsangYong going into receivership.
According to sources with knowledge of the matter, Mahindra has been attempting to sell its full 75 percent stake in SsangYong Motor to HAAH, while the latter is demanding the former to remain as a minor stakeholder to guarantee SsangYong's other debts.
They said the two sides appear to have failed to iron out their differences, and Mahindra is accelerating efforts to dump SsangYong.
The ARS program terminates at the end of February, and the involved parties ― Mahindra, SsangYong, HAAH and the creditors ― were supposed to submit a list of actions they would fulfil to the bankruptcy court by Jan. 22, but they have failed to reach an agreement.
There are rumors that Mahindra has already quit the negotiations, and the remaining parties are leaning toward a prepackaged bankruptcy program. This is a fast-track reorganization program that helps a distressed company escape from bankruptcy by writing off some of its liabilities and allowing creditors to inject new funding, allowing a faster recovery. If this is finalized, HAAH will most likely purchase a stake in SsangYong.
If SsangYong enters the prepackaged program, it is uncertain how much Mahindra will lose of its investment in the carmaker because the program involves a capital reduction. So far, Mahindra has invested 700 billion won into SsangYong.
"Mahindra seems to be trying to exit from SsangYong by any means possible, risking its previous investment," one of the sources said. "It remains to be seen whether the creditors will inject new money into SsangYong."
Mahindra had already mentioned placing SsangYong under prepackaged bankruptcy.
On Jan. 1, Mahindra Group CFO Anish Shah said: "We would expect a slightly higher impairment in the case of a prepackaged rehabilitation program. The key will be what is the equity value when it comes out of receivership and what is the potential haircut from the debt we will face."
