Mahindra-owned SsangYong files for bankruptcy second time in 11 years
Mahindra & Mahindra (M&M)-owned SsangYong Motor Company (SYMC) has filed for bankruptcy. While there are enough instances of failed overseas acquisitions, the company — bought from a court receivership by an Indian company — heading back to bankruptcy after a decade is unheard of.
On Monday, SYMC intimated the Korean Stock Exchange regarding the commencement of rehabilitation procedure with the Seoul Bankruptcy Court, M&M said in a notification to the stock exchanges.
The development comes a week after the struggling automaker missed the December 14 deadline for repayment of Rs 480 crore (60 billion Korean Won) to JPMorgan Chase Bank in South Korea.
“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,” said Aditya Makharia, vice-president at HDFC Securities.
M&M is very serious about capital allocation and it is not willing to put money in a difficult business any more, added Makharia.
The latest development is unlikely to have any impact on M&M’s financials. It took an impairment hit in the March quarter of 2019-20. Owing to the impairment charges, M&M reported a record Rs 530-crore loss during the quarter — the steepest in 19 years. It also ceased making fresh investment in South Korean operations since the beginning of the ongoing financial year.
“I am surprised it took M&M so long to exit. Doing it now is three-four years late,” said Mahantesh Sabarad, head of research at SBICAP Securities.
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The inability to scale up volumes amid tough competition from Kia and Hyundai on its home turf and volatile export markets have been one of the biggest challenges for a firm that has seen multiple changes in ownership — from Daewoo Motors in 1997 and SAIC Motor Corporation in 2004 to M&M in 2009.
It paid Rs 2,100 crore for the acquisition.
Some also attribute SYMC’s troubles to its conspicuous absence in key markets. “The acquisition by M&M helped the brand enter the Indian market. But the Indian parent took too long to ride on the growing sport utility vehicle (SUV) market here,” observed an analyst.
It only brought a competitive product to the Indian market last year, with the launch of the Tivoli-derived Mahindra XUV300. M&M, however, has done nothing to explore the two main SUV markets — China and the US. Its presence in Europe is very limited, he added.
The tractor-to-technology conglomerate completed the acquisition of the troubled South Korean automaker in 2011, hoping the buyout would help it in bolstering its SUV portfolio and push M&M into the league of global automakers.
But with a market share of less than 5 per cent, the maker of Korando and Rexton SUVs, the smallest among the Korean rivals in terms of sales, was nowhere close to becoming a global SUV player — neither in scale nor in geographical presence.
A steep contraction in export volumes, sudden changes in buyer preference for gasoline vehicles in South Korea, among other factors, caught the company unawares and plunged M&M’s Korean subsidiary into record losses of Rs 704 crore in calendar year 2019. The Covid-19 pandemic, too, compounded its woes.
The wheels have now turned full circle for SYMC.
It is once again headed for court receivership. It has also applied for an autonomous restructuring support (ARS) programme, which is a court-designed process, stated the notification.
“If the court approves ARS, SYMC 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,” M&M said in a statement.
The Seoul Bankruptcy Court will deliberate and review the application and relevant documents submitted by SYMC to determine whether or not the court will commence the restructuring process of SYMC. SYMC has also applied for disposition of property preservation and an order of comprehensive prohibition.
As part of the rehabilitation process, the courts, while admitting SYMC’s application, will issue a comprehensive stay or prohibition order. This is to prevent SYMC’s creditors from enforcing any security claims, and a preservation order for SYMC not to engage in any disposal of property or assets without the court’s approval, so as to adversely impact the interests of creditors.
