SsangYong Motor files for bankruptcy
South Korean automaker SsangYong Motor, owned by Mahindra & Mahindra, has filed for bankruptcy after defaulting on loans worth Rs 602 crore. The company defaulted last week on debt worth Rs 408 crore to a consortium of banks, including JP Morgan Chase, BNP Paribas and Bank of America.
This comes more than a decade after Mahindra acquired the company. In February 2020, Mahindra had proposed to invest about Rs 3,000 crore in the South Korean automaker but backtracked due to the COVID-19 pandemic. More than 5,000 people will be affected as they are likely to lose their jobs.
Mahindra said SsangYong applied for the commencement of rehabilitation to the Seoul Bankruptcy Court under the Debtor Rehabilitation and Bankruptcy Act of South Korea. The automaker has also applied for an Automous Restructuring Support (ARS) programme, which is a court designed process. If the court approves ARS, it will facilitate the recovery of funds for creditors while trying to help the company avoid filing for bankruptcy.
Sources said the parent company had put a Rs 3,000 crore turnover package on hold, taking SsangYong to the brink. Moreover, there had been indications that Korea Development Bank (KDB) would consider extending the maturity of loans if the automaker cleared its debts to the foreign banks.
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Seungbum Lee, partner Yulchon LLC, a South Korean law firm, said it appears that KDB found that liquidity-stricken SsangYong will not be eligible for support from the Basic Industry Stability Fund operated by KDB with the intention to support companies undergoing financial difficulties. “Without KDB’s extension for the maturity of the loans, SsangYong may be on track for commencement of an insolvency proceeding,” he said. Hitesh Goel, director research, automobiles and components at Kotak Institutional Equities, pointed out that to enter receivership, SsangYong must freeze the sale of its assets. “In return, under the receivership programme, the company can continue its production and negotiations with a potential buyer, albeit at a much lower valuation.
Furthermore, Mahindra said if the court approves ARS, the automaker will continue to function under the supervision of its board, and will negotiate with stakeholders to reach an understanding about a revival package.