Finding a New Owner for Ssangyong Motor Becomes Visible... Negotiations Underway with 3-4 Foreign Companies

Mahindra, 3-4 Companies Including Vietnam in Negotiations
"No Restructuring Means No Revival" Concerns Raised

[Asia Economy Reporters Kiho Sung and Suyeon Woo] It has been confirmed that Mahindra & Mahindra (Mahindra), the largest shareholder of SsangYong Motor, is negotiating with three to four foreign companies, including those from Vietnam, for the sale of SsangYong’s shares. However, considering the scale of the interested companies and their experience in the automotive business, there are skeptical views on whether this will serve as a foundation for SsangYong’s revival.

According to the automotive industry on the 18th, Mahindra has recently been conducting behind-the-scenes contacts for share sales with companies including Vietnamese firms. Among them, Vietnamese companies are reportedly the main candidates.

The market expects the sale price of SsangYong Motor to be around 250 billion KRW, which includes the approximately 200 billion KRW worth of shares held by Mahindra plus a management premium. Additionally, SsangYong’s possession of its own platform and sufficient technological capabilities, as well as the ability to utilize domestic and international sales networks, increase the likelihood of a sale.

Mahindra’s search for investors in SsangYong Motor reflects a complex calculation. The nominal reason is to directly persuade investors to acquire SsangYong and demonstrate responsible behavior as a major shareholder, but the practical reason lies in Mahindra’s financial situation, which has been pushed to a point where it is insufficient to sustain SsangYong, and the fact that SsangYong has been a loss-making affiliate within the group.

Since acquiring SsangYong in 2011, Mahindra has poured nearly 700 billion KRW into the company, but SsangYong has continued to post losses for 13 consecutive quarters since 2017, showing no signs of recovery. As confidence in sustainable profit generation weakens and the financial situation of the Mahindra group worsens due to the COVID-19 pandemic, it is interpreted that they have started to reorganize low-profit businesses first.

The current value of Mahindra’s 76.5% stake in SsangYong Motor (based on the closing price of 1,990 KRW on the 17th) is 222.6 billion KRW, recording an impairment loss of 334.4 billion KRW compared to Mahindra’s investment amount of 557 billion KRW. Mahindra participated in three capital increases including the acquisition payment for SsangYong in 2011, and when including the 95.4 billion KRW in corporate bonds purchased and the 40 billion KRW special loan support executed in May, the cumulative investment reaches 700 billion KRW. Assuming not only the loss in share value but also the impossibility of repaying corporate bonds and loans, the expected investment loss could increase to approximately 470 billion KRW. After Mahindra’s acquisition, SsangYong returned to a ‘brief profit’ in 2016 with the launch of the Tivoli, but recorded losses in all other years.

The industry points out that even if SsangYong finds a new owner, it will be difficult to revive without structural reforms covering product development, production, and labor relations. Meaningful structural improvement is expected only if the launch of the electric vehicle currently under development proceeds smoothly and SsangYong’s chronic high cost structure is overhauled. Without responsible efforts from SsangYong, government funds and ownership changes will only lead to repeating the same history. SsangYong estimates it will need 500 billion KRW over the next three years for electric vehicles, connected cars, and eco-friendly engine development. Even adding Mahindra’s special support of 40 billion KRW and 100 billion KRW in cost savings through SsangYong’s self-help efforts, there remains a shortage of over 360 billion KRW. SsangYong is reportedly applying for liquidity support of around 200 billion KRW from the government.

Researcher Hanggu Lee of the Korea Institute for Industrial Economics & Trade said, “Even if there are foreign companies interested in SsangYong, it remains uncertain whether the acquisition will ultimately be successful,” adding, “It is concerning that global automakers that have entered Korea, including GM and Mahindra, are recently following similar paths.”

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