Mahindra and Mahindra owned SsangYong Motor Company has filed for bankruptcy. While there are enough instances of failed overseas acquisitions, a firm bought from Court Receivership by an Indian company heading back to bankruptcy after a decade, is unusual.
On Monday, SYMC intimated to the Korean Stock Exchange regarding the commencement of the 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 repayment of Rs 480 crore (60 billion Korean Won) to JP Morgan Chase Bank, South Korea which was due on December 14.
“The bankruptcy filing by a company bought by an Indian firm may sound alarming as it is rare. But this has to be seen in the current context when lots of businesses have gone bankrupt due to the pandemic,” says Aditya Makharia, vice president at HDFC Securities. M&M is very serious on capital allocation and it’s not willing to put money in a difficult business any more, he added.
The latest development is unlikely to have any impact on M&M’s financials. It took an impairment hit in the March quarter of FY20. Owing to the impairment charges, Mahindra reported a record 530 crore loss in during the quarter, the steepest in 19 years. It also ceased making fresh investment in Korean operations since the beginning of the ongoing fiscal. “Am surprised it took them (M&M) so long to exit. Doing it now, in 2020 is three to four years late,” says Mahantesh Sabarad, head of research at SBI Securities.
“’Am surprised it t, head of ok them (M&M) so long to exit. Doing it now, in 2020 is three to four years late,” says Mahantesh Sabarad, head of research at SBI Securities.
Inability to scale up the volumes amid a tough competition from Kia and Hyundai in its home market and volatile export markets has been one of the biggest challenges for a firm that has seen multiple changes in ownership -- from Daewoo Motor Corp in 1997 to SAIC in 2004 and M&M in 2009.
It paid Rs2100 crore for the acquisition.
Some also attribute the SYMC’s troubles to their absence in key markets. “The acquisition by Mahindra helped the brand enter the Indian market. But the Indian parent took too long to ride on the growing SUV market here,” said an analyst.
They only brought a competitive product to the Indian market last year with the launch of the Tivoli-derived Mahindra XUV300. Mahindra however, has done nothing to explore the two main SUV markets — China and the USA. Their 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 that the buyout would help it in bolstering its SUV portfolio and push M&M into the league of global auto makers.
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 Korea, among other factors, caught the company unawares and plunged Mahindra’s Korean subsidiary into record losses of Rs704 crore in calendar year 2019. The Covid-19 pandemic o added to its woes.
The wheels have now turned full circle for SYMC. It is once again headed for a court receivership. It has also applied for an Autonomous Restructuring Support (ARS) program which is a court designed process, the notification said. “If the Court approves the 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 the 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 court’s approval so as to adversely impact the interests of the creditors.
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