Mahindra & Mahindra’s South Korean subsidiary SsangYong Motor Co has filed for court receivership after it defaulted on loan repayment of about 60 billion won (Rs 408 crore), according to a Reuters report.
· Carmaker applies for autonomous restructuring support
· SsangYong sale negotiations still ongoing
“SsangYong Motor applied for the court receivership procedure as a massive disruption in the operation is expected after the company could not reach an agreement to extend its loan repayment deadlines with foreign banks,” said the report.
SsangYong loan defaults
Mahindra, which holds a 74.65% stake in SsangYong, had informed last week that SsangYong Motor missed its loan repayment last week. SsangYong Motor Company has loans aggregating to 100 billion Korean won (approximately Rs 680 crore), of which outstanding loans of 60 billion KRW (around Rs 408 crore) from JP Morgan Chase Bank, 10 billion KRW (around Rs 68 crore) from BNP Paribas and 30 billion KRW (around Rs 204 crore) from Bank of America were defaulted on last week.
What is court receivership?
A receivership is a court-appointed tool that can assist creditors to recover funds in default and can help troubled companies avoid bankruptcy. In the first instance, having a receivership in place makes it easier for a lender to recover funds owed to them when a borrower defaults on a loan.
In the second case, a receivership may occur as a step in a company's restructuring process, with the goal of returning the company to profitability
SsangYong said it had applied for an autonomous restructuring support program, which gives the Korean carmaker up to three months to negotiate with stakeholders – including creditors – to resolve issues, delaying the court’s decision.
Mahindra looking to sell stake in SsangYong
The report further states that South Korea’s trade ministry issued a statement saying “Regardless of SsangYong’s filing for court receivership, negotiations of SsangYong sale deal is still ongoing.”
Back in June, Anish Shah, Group CFO, Mahindra Group, had revealed that Mahindra was open to new investors buying out Mahindra’s stake in the Korean company, during a media interaction.
Mahindra had earlier in February looked to invest Rs 2,800 crore in SsangYong as part of a plan that would see the Korean company achieve profitability in 2022. However, in April, the Mahindra board rejected the proposal for fresh funding to SsangYong over a three-year period owing to the crisis caused by the COVID-19 pandemic.