Mahindra Faces Pressure to 'Give Up Major Shareholder Status'... Financial Services Commission and KDB Struggle with Ssangyong Motor

"Need for New Investors" Mentioned
Unclear if Support Strategy or Real Withdrawal
Hard to Pinpoint Exact Position
Authorities Say "Need to Monitor Situation Further"

[Asia Economy Reporter Jo Gang-wook] The financial authorities and the main creditor bank, Korea Development Bank (KDB), are caught in a dilemma over the support issue for Ssangyong Motor, which is trapped in a desperate situation. Mahindra of India, which holds 75% of Ssangyong Motor's shares, has indicated that it may give up its status as the major shareholder, intensifying the pressure. Ssangyong Motor is already on the brink of collapse due to various adverse factors such as the parent company's withdrawal of investment, 13 consecutive quarters of losses, and a refusal of audit opinion in the first quarter. Ultimately, recovery is impossible without government support, but concerns about the controversy of 'pouring water into a bottomless jar' make it difficult to take action easily.

According to the financial sector on the 15th, the government and KDB are currently trying to ascertain Mahindra's true intentions. Earlier, foreign media including Reuters reported on the 12th (local time) that Mahindra was considering giving up control of Ssangyong Motor based on remarks by Pawan Goenka, Chairman of Ssangyong Motor's board and Mahindra's president, stating "Ssangyong Motor needs a new investor."

A financial authority official said, "It is difficult to grasp Mahindra's exact position based solely on foreign media reports," and added, "We need to observe the situation a bit more." This is interpreted as meaning they want to see whether this is a negotiation strategy to receive government support or a genuine intention to withdraw. Earlier in April, Mahindra withdrew a 230 billion won investment plan and provided only a one-time fund of 40 billion won, expressing an ambiguous stance that "we will continue other support such as seeking new investors." At that time, the government and KDB interpreted it as due to liquidity difficulties at the headquarters caused by the COVID-19 pandemic.

However, Mahindra's repeated emphasis on "seeking new investors" during conference calls explaining performance and future prospects to institutional investors and securities analysts, and even hinting at the "possibility of giving up major shareholder status," is analyzed as tacitly solidifying its intention to withdraw from Ssangyong Motor.

Ssangyong Motor's net loss in the first quarter reached 193.5 billion won. It has recorded losses for 13 consecutive quarters since 2017. Mahindra, which holds 75% of Ssangyong Motor's shares, has invested 700 billion won in Ssangyong Motor so far, but the current share value is about 240 billion won. For this reason, some interpret that Mahindra is intensifying pressure to draw support from KDB. If Mahindra withdraws, about 10,000 jobs, including 5,000 at Ssangyong Motor and parts suppliers, will be threatened. Earlier, KDB extended a loan of 20 billion won due in December last year once. Ssangyong Motor must repay a 90 billion won loan to KDB next month.

Mahindra is understood to be keeping in mind the precedent when KDB injected 800 billion won in 2018 amid rumors of GM's withdrawal from Korea. At that time, KDB's support rationale was also to maintain employment. GM promised to stay in Korea for more than 10 years and produce two new car models domestically. However, KDB holds the position that the situations of GM and Ssangyong Motor are different. KDB is only the main creditor bank of Ssangyong Motor and does not hold shares. Unlike Korea GM, which supported funds as the second-largest shareholder, there is no justification to inject funds into Ssangyong Motor.

In particular, supporting a company whose major shareholder has effectively withdrawn contradicts the basic principle of public fund investment. The principle of corporate support that "support is provided in proportion to the major shareholder's sacrifice" would be broken. Recently, Doosan Group, which received 3.6 trillion won in funding support from KDB and the Export-Import Bank, submitted a self-rescue plan exceeding 3 trillion won to creditors. Ssangyong Motor is known to be pinning its hopes on the 40 trillion won Industrial Stabilization Fund announced by the government last month.

A financial sector official said, "Ssangyong Motor hopes for 200 billion won support through the Industrial Stabilization Fund, but since the fund is intended to support companies struggling due to the COVID-19 crisis, support through the fund will not be easy," but added, "However, since the government is focusing on 'job preservation' during the COVID-19 phase and has started corporate support, some form of support for Ssangyong Motor is possible."

This content was produced with the assistance of AI translation services.