The UV maker has won Reserve Bank of India approval to reduce its 75% stake in SsangYong Motor to 25% through a capital reduction, people in the know say.
“RBI approved the capital reduction. Ssangyong is doing its best to negotiate with HAAH and submit Plan P to court, before March 15. Of course, there is always a risk that the negotiation with HAAH will not be very fruitful, says Seung Bum, partner at Seoul corporate law firm Yulchon.
Capital reduction for cash-strapped Ssangyong is needed before Haah invests there.
The delay in the sale of stakes to HAAH Automotive, a U.S.-based vehicle distributor that had sought to inject $250 million (282 billion won) into the struggling automaker, would tip SsangYong closer to the bankruptcy process. HAAH was to infuse the funds on the condition that the KDB injects a similar amount. However, experts said the KDB refused to invest more funds in SsangYong without a recovery roadmap.
The P-Plan, or a pre-packaged rehabilitation plan, should be prepared by SsangYong with its creditors to expedite its financial reorganization.
SsangYong’s creditors, including KDB, would only agree to Plan P after the automaker and the new investor agree on issues such as investments and recovery roadmap, experts say.
HAAH Automotive, meanwhile, estimates that SsangYong would incur losses of around 600 billion won over the next two years before starting sales of SsangYong vehicles in the United States.
Meanwhile, SsangYong is facing lower sales and fewer operational days at its Pyeongtaek plant.
It also appears that the KDB has asked the SsangYong union to extend the validity of the collective agreement and ban strikes as a precondition for financial support.
SsangYong filed for receivership in December 2020, and the court decided on the Autonomous Restructuring Assistance (ARS) program before putting it into rehabilitation. The rehabilitation process is essentially a debt readjustment, which may include labor restructuring.
Mahindra had previously decided to put on hold its plan to inject $400 million in equity into SsangYong. Mahindra had paid 2,100 crore rupees, or $463 million, for the purchase of SsangYong ten years ago.