Mahindra board rejects proposal for fresh funding to SsangYong

Mahindra board rejects proposal for fresh funding to SsangYong

4th Apr 2020 2:50 pm

Mahindra board cites crisis caused by the coronavirus pandemic as reason for discarding investment plan in its subsidiary; will continue supporting all other non-fund initiatives of SsangYong Motors.

Mahindra & Mahindra’s (M&M) board of directors held a special meeting to review investment in SsangYong Motor Company (SYMC) and at the same time to discuss the approach about capital allocation in light of the COVID-19 impact. It maybe recollected that in February Mahindra was considering investing Rs 2,800 crore in the Korean carmaker, and targeted profitability by 2022.

Mahindra’s board was considering a request from the management and labour union of SsangYong for fresh injection of equity to help the company fund 500 billion Korean won (Rs 3,004 crore) of requirements over the next three years. The board noted that large parts of the global economy are under shutdown, and India particularly is under an unprecedented 21-day complete lockdown.

The board has initiated several measures to tighten capital allocation norms and ensure that M&M remains strong through the current crisis and beyond. After lengthy deliberation, given the current and projected cash flows, Mahindra’s board took a decision that the company will not be able to inject any fresh equity into SsangYong and has urged it to find alternate sources of funding. However, with a view to enable the Korean carmaker to have continuity of business operations, whilst they are exploring alternate sources of funding, the board has authorised the M&M management to consider a special one-time infusion of up to 40 billion Korean won (Rs 236 crore) over the next three months.

In addition, Mahindra says it would make every effort to continue supporting all other non-fund initiatives that are currently in place to help the Korean carmaker reduce capex, save costs and secure funds. Examples of such support are:

  • Capex-free access to Mahindra’s new platforms such as W601.
  • Support technology programmes which would help reduce SsangYong's capex
  • Support the material cost reduction programme that is currently underway
  • Support SsangYong management to find new investors

Mahindra’s Board says it hopes that the employees and management at SsangYong understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision.

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