India's Mahindra Group, Ssangyong Motor's largest shareholder, has refused to make new investments. Market watchers say Ssangyong, which is suffering from a liquidity crisis caused by sluggish sales, is at a critical juncture.
India's Mahindra & Mahindra, an auto arm of India's Mahindra Group, announced at a special board of directors’ meeting on April 3 that it has decided not to inject new capital into Ssangyong.
Mahindra explained that the decision was made after the board discussed how to allocate capital to various business sectors hit by the new coronavirus infection.
Mahindra initially announced in January its plan to invest 230 billion won to normalize Ssangyong's management. The state-run Korea Development Bank (KDB) and the South Korean government also attached a precondition for providing funds to Ssangyong.
However, the board of directors withdrew its funding plan. “The new capital injection requested by Ssangyong's management and labor union to raise the 500 billion won needed over the next three years was discussed,” Mahindra said, adding that after much consideration, it concluded that it could not inject new capital into the carmaker and recommended finding an alternative to raise funds for the carmaker.
However, Mahindra said it would inject up to 40 billion won in one-off special funds over the next three months. It is believed that it pressured the KDB and the South Korean government to provide additional support since it will give them three months.
Mahindra also cited a capital-free approach to Mahindra's new platforms such as the W601 platform, support for technology programs that can reduce the automaker's capital expenditures, support for ongoing material cost-cutting programs, and support for Ssangyong executives to seek new investors.
Critics, however, point out that such a proposal by Mahindra is not effective given that it does not help Ssangyong solve its liquidity problem right away. Some believe that Mahindra intends to pressure politicians to bring support to Ssangyong ahead of the election by raising the issue.