The board of Mahindra & Mahindra (M&M) decided that there will be no fund infusion into its Korean subsidiary SsangYong Motor Company (SYMC) as a result of the worldwide disruption caused by novel coronavirus, or COVID-19.
The board of M&M held a special meeting held on April 3 to review investments in SsangYong and discuss the approach to capital allocation. M&M has been trying to find new investors for SYMC since the last few months after failing to turn around the latter's loss-making operations since its acquisition 10 years ago.
Less than two months ago, the Ssangyong board had approved a three business plan requiring a fund infusion of 450-500 billion KRW, half of which was supposed to be raised through a bank loan and the balance through equity infusion.
SYMC Chairman and M&M Managing Director Pawan Goenka met senior executives of a state-run bank in Korea in January to discuss the funding plans that are vital for a stable future of SYMC.
At the April 3 meeting, M&M considered a request from the management and labour union of SYMC for fresh injection of equity to the tune of 500 billion KRW ($406 million) over the next three years.
“After lengthy deliberations, given the current and projected cash flows, the M&M board took a decision that it will not be able to inject fresh equity into SYMC and has urged it to look at alternate sources of funding,” M&M said in a release.
M&M added that the board also initiated several measures to tighten capital allocation norms and ensure that it remains strong through the current crisis and beyond.
“To enable SYMC to have continuity of business operations, while they are exploring alternate sources of funding, the board authorised the M&M management to consider a special one-time infusion of upto 40 billion KRW ($32 million) over the next three months," the statement said.
Instead of a large funding aid, M&M said it has readied several steps that would help SYMC cut back on its capex. These include access to M&M’s new platforms such as W601, technology support platforms and support in material cost reduction program.
“We will reduce costs significantly this year and next year, followed by a breakeven the year after that,” Goenka had said in February in a media interaction. An impairment charge of Rs 320 crore at SYMC was taken by M&M during the December quarter from a total of Rs 600 crore.
M&M holds nearly 75 percent stake in SYMC. The maker of Scorpio and XUV brand of vehicles has invested more than $110 million since it first acquired a controlling stake in the loss-making firm nearly a decade ago.
SYMC has borne the brunt of the slowdown. In 2019, the carmaker sold a total of 135,235 units, a year-on-year drop of 5.6 percent. It sold 107,789 units in the domestic market in 2019 as against 109,140 sold in 2018.
An earlier version inadvertently mentioned that the M&M board had agreed for a fund infusion in Ssangyong.
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