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SSANGYONG’S future is again in doubt after its majority shareholder, India’s Mahindra & Mahindra, announced it planned to reduce its stake in the loss-making Korean-based car-maker.

Mahindra & Mahindra (Mahindra), one of India’s biggest vehicle producers and the largest tractor maker in the world, has 74.65 per cent of Ssangyong and wants to sell control as the global pandemic and ongoing losses affect the parent company.

Global sales of SsangYong are down 28 per cent to 56,846 units in the first seven months of this year compared with the same time in 2019 when it sold 78,687 vehicles.

SsangYong posted a 98.6 billion won ($A120 million) operating loss in the first quarter of 2020 and could go even deeper into the red in the second quarter.

Mahindra, which according to its annual report to March 2020 had an investment in SsangYong of 3400 billion won ($A4.6 billion), in April this year rejected SsangYong’s request for 500 billion won ($A590 million) to restructure the business over the next three years.

It did, however, inject 40 billion won ($A47 million) into SsangYong in April to help it ride out the pandemic.

The Korean company has 390 billion won ($A460 million) in outstanding short-term loans, most of which need to be repaid by the end of this year.

According to a report by the Economic Times (ET) of India, the lending banks have said that if Mahindra sells its controlling stake, the buyer will first have to clear all outstanding debts.

“This is the final chance for Mahindra to exit, after which SsangYong may file for bankruptcy,” said a person quoted by ET.

In a statement to Just-Auto, Mahindra said: “It is hard for us to find a new investor in SsangYong if we keep our majority stake. So Mahindra has agreed to lower its stake to below 50 per cent to encourage more investors.”

But even that may be difficult. Mahindra may only be allowed to offload a 26 per cent stake out of its total 74.65 per cent holding – taking its share to just under 49 per cent – as the South Korean government may bar it from exiting completely.

The government may also insist on a smaller sale of the shareholding.

SsangYong also faces barriers from one of its investors, the Korea Development Bank, which has now refused any immediate assistance to SsangYong, preferring to fund companies affected by the pandemic.

SsangYong’s external auditor has also refused to sign its financial statement claiming there are discrepancies.

SsangYong has not been idle in attempting to clear debt. This year it sold a service centre in Seoul to an asset management company for $US147 million ($A207 million).

Rumours swirl about potential buyers of SsangYong, led by South Korean-based Renault Samsung Motors (RSM). Ford has been mentioned in speculation because it has dealings with Mahindra in India, but Ford, in an email to ET, said it “is not in discussion to buy a stake in Ssangyong. We categorically deny and request you to keep Ford out of the speculations as it impacts operations overseas.”

ET reported last month that investment banks Samsung Securities and Rothschild had been contacted to help find a buyer for SsangYong. Contact was also made with Geely and BYD in China, along with Vietnam’s Vinfast.

Analysts contacted by ET said global anti-Chinese sentiment meant any possible strategic tie-up with a Chinese car maker “is fraught with risk.”

SsangYong went into bankruptcy in 2009 after being owned by the Chinese car-maker, SAIC, from 2004.

Mahindra bought SsangYong from bankruptcy in 2010 and completed the acquisition in February 2011. Its first model since that takeover was the Tivoli in 2015.

A year later, SsangYong posted a net profit – its first in nine years. Under Mahindra, it launched four new models from 2017 to 2019. By April 2020, the debt had mounted and Mahindra sounded alarm bells.

The SsangYong situation isn’t the only problem for the South Korean car industry.

Samsung is expected to sell its 19.9 per cent stake in Renault Samsung Motors after the trademark contract between it and Renault ends this month.

Without a two-year renewal, the joint venture has to remove the name Samsung from the company name after a two-year grace period.

Renault Samsung Motors was established in 2000 when Renault Group bought Samsung Motors.

Subsequently, the car-maker’s domestic sales have fallen 16.5 per cent and operating profit plunged 40.4 per cent in 2019 (the latest figures available) compared with 2018.

By Neil Dowling

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