[Exclusive] Ssangyong Motor-Mahindra-HAAH, Pre-Consultation on Court Receivership... Due Diligence Completed

[Asia Economy Reporters Kim Hyewon and Sung Kiho] Ssangyong Motor's filing for corporate rehabilitation with the court on the 21st was made possible by behind-the-scenes coordination among three stakeholders, including the largest shareholder Mahindra Group and the U.S. automotive distributor HAAH Automotive, which is negotiating the sale. Ssangyong plans to simultaneously apply for court receivership and the Autonomous Restructuring Support (ARS) program to postpone the start of rehabilitation proceedings by up to three months, using this period to finalize share sale negotiations with the new investor HAAH and put out the urgent fire.

According to multiple insiders familiar with Ssangyong's situation on the 22nd, HAAH has already completed due diligence on Ssangyong's financial status and confirmed prior consultation with Ssangyong regarding the court receivership application. From HAAH's perspective, with the share sale negotiations with Mahindra stalling, filing for court receivership is not a bad card. The receivership filing also presents an opportunity to lower the acquisition price if Ssangyong's stock price falls. If Ssangyong undertakes voluntary self-help measures to trim organizational fat during this period, it will reduce restructuring costs for HAAH after investment.

The key issue is whether the Indian government will ease regulations. HAAH currently demands more than 50% ownership and management rights from Mahindra, but the Indian government's legal restrictions, which cap overseas share sales by domestic companies at 25%, are known to be the biggest obstacle in negotiations. If resolved, the search for a new owner of Ssangyong could accelerate significantly within three months.

Mahindra currently holds 74.65% of Ssangyong's shares, with the first goal being to reduce its stake below 50%. However, HAAH demands that Mahindra hold less than 30%, creating a gap in positions. A source said, "Mahindra has stated that, separate from the sale negotiations with HAAH, if Ssangyong undergoes procedures such as court receivership that make a reduction in the major shareholder's stake inevitable, it will responsibly comply with the reduction."

Ssangyong has first gained up to three months by applying the ARS program. During the stay period of the rehabilitation proceedings, Ssangyong is exempt from debt repayment obligations and plans to reach a restructuring agreement between creditors and major shareholders, finalize new investment negotiations with HAAH, and then apply to the court to withdraw the rehabilitation proceedings. It is reported that Ssangyong has even prepared a scenario to secure additional shares through a rights offering if negotiations with Mahindra and HAAH proceed smoothly. For now, it remains uncertain whether the rehabilitation proceedings will actually commence.

However, if the 'three-month alliance' plan among Ssangyong, Mahindra, and HAAH falls through, court receivership will be inevitable. Ssangyong lacks the capacity to repay loans amounting to 165 billion KRW. Except for one year (2016), Ssangyong has accumulated losses for over ten years since 2007. Operating losses for the first to third quarters of this year reached 308.9 billion KRW, already surpassing last year's annual deficit of 281.9 billion KRW.

Some express skepticism that even if Ssangyong's major shareholder changes from Mahindra to HAAH, without fundamental competitiveness improvement through intensive restructuring, the management difficulties cannot be overcome. Lee Hanggu, senior research fellow at the Korea Automotive Research Institute, said, "Ssangyong's situation won't be resolved just by changing owners. There is no more room to cut fixed costs, and due to lack of funds, R&D and new car launches are impossible, so large-scale restructuring is inevitable."

If the court decides to commence rehabilitation proceedings, it will appoint a manager and an investigator for Ssangyong. Shareholders, including the largest shareholder Mahindra, will lose all rights to exercise their authority. The investigator will assess Ssangyong's debts, assets, and rehabilitation prospects and submit a report on whether saving the company is advisable. If the investigator judges that Ssangyong has no chance of rehabilitation and the court agrees, the rehabilitation proceedings may be immediately terminated. Conversely, if creditors support continuing the proceedings based on the investigator's report, the court will order the manager to submit a rehabilitation plan, and if there are no legal issues, full-scale rehabilitation will commence.

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