Ssangyong Motor Co. (SYMC), the South Korean subsidiary of Mahindra & Mahindra (M&M), missed a repayment of 480 million rupees (60 billion Korean won or KRW) to JPMorgan Chase Bank, South Korea, which was to take place on December 14 M&M said on Tuesday in a stock exchange notification. The company also added that it will act as a creditor to SYMC.
The company listed in South Korea was hit by the pandemic, with outstanding loans totaling KRW 100 billion (approximately 680 million lei). In addition to JPMorgan, the loan also includes KRW 10 billion (approximately 68 million lei) from BNP Paribas and KRW 30 billion (204 million euros) from Bank of America.
M&M, which owns 75% of SYMC, rescued the near-insolvency sports utility vehicle (SUV) manufacturer in 2010, but struggled to revive its fortunes. “While the company has pledged to cover the amount granted by banks, its final liability will be limited to the extent that it has not been recovered from SYMC,” the statement said.
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M&M added that when the company pays dues to banks, it will be subrogated to all banks’ rights against SYMC.
He will enter the shoes of the banks as a creditor and will be entitled to all the rights that the banks had against SYMC, in respect of these loans.
This means that M&M, which holds equity in the company, will acquire the rights of the bankers. Analysts said that if M&M does not find a partner and SYMC goes bankrupt, it will be difficult for M&M to recover the money borrowed from SYMC.
Mahindra was looking for a partner for the besieged branch. The Mumbai-based company has developed a strategy to exit loss-making subsidiaries and underperforming companies, as it aims to strengthen the return on equity for its shareholders.
SYMC, which is battling competition from rival Korean companies, has sunk further into the red after the Covid-19 pandemic. Hit by the depreciation of SYMC, Mahindra reported the first quarterly loss in the March quarter of fiscal year20, in almost two decades.
In February this year, Mahindra said it would pump $ 380 million – $ 450 million as part of a three-year plan to revitalize SYMC and transform it by 2022. Among other things, the plan includes reducing material costs aggressively.
But the proposal to introduce new equity into the loss-making subsidiary was rejected by the Mahindra Council in April. However, the company said the company will make every effort to continue to support all other non-fund initiatives that are currently in place to help SYMC reduce capital expenditures, save costs and secure funds.
In June, M&M said it intends to relinquish control of SYMC, as it appears to be stepping out of companies with losses due to the coronavirus pandemic. Mahindra’s stock closed at Rs 718.25 on Tuesday, up 1.01% from BVB.