M&M floats three-year plan to revive Ssangyong
nMUMBAI: Mahindra and Mahindra Ltd (M&M) on Tuesday said it plans to ensure funding of 500 billion Korean won (roughly $422 million) across three years to revive Ssangyong Motor Co., its ailing subsidiary. Of this, 300 billion won will go into fresh funding of operations and the rest for paying up maturing loans.
“Ssangyong will require investments in the range of 450500 billion Korean won for full recovery in three years,” M&M managing director Pawan Goenka said in Mumbai. “We are hoping that this funding would be arranged by March end. The three-year recovery plan is approved by the Ssangyong board.” While half the investment will be via equity, the other half will be sourced from banks.
M&M, which holds nearly 75% in Ssangyong, is in talks with Korea Development Bank to arrange funds for the Korean carmaker.
He said there are only three sources of funding for Ssangyong—an investment by M&M, bank loans, or investment by a third party.
Ssangyong posted a loss of 341.4 billion won ($288 million) in calendar year (CY) 2019 because of sluggish sales and increasing depreciation and operating costs, up from $56 million and $58 million in CY2018 and CY2017, respectively.
According to Bloomberg data, total debt at the carmaker rose from $161 million in 2016 to $383 million in 2019, amid mounting fixed costs and overheads. “It would be unreasonable to plan a full recovery for Ssangyong this year. We plan to ensure it returns to profitability by CY2022,” Goenka said.
“In automobile manufacturing, when a company is about to break even and the market hits slowdown, you see cascading impact of several factors at play. Ssangyong was on its way to break even in CY2019, and everything was fine until Q1 last year,” said Goenka, adding besides the general slowdown in car demand, the company was impacted by its diesel-heavy portfolio as the South Korean market saw shift to petrol variants under stringent emission norms.
M&M said it will develop new markets for Ssangyong besides rationalizing capex and helping the carmaker cut material costs to turn around it’s overheads. “New markets would include Russia and Vietnam with the latter helping in CY2020,” Goenka said.
Goenka said that M&M would fetch savings of about 80-90 billion won in two years on material costs. “This should help us achieve an improvement of 2-3% in Ssangyong’s operating margins,” he added.