Ssangyong heads for court protection as Mahindra backs off

India’s Mahindra and Mahindra Ltd. has pulled out of talks to sell Ssangyong Motor Co. to HAAH Automotive Holdings Inc., a US automobile distributor, pushing the South Korean carmaker closer to court-led restructuring.

Mahindra failed to narrow a price gap with HAAH last week, according to automobile industry sources on Jan. 25.

In September of last year, Irvine, California-based HAAH offered to invest 300 billion won ($272 million) in Ssangyong to acquire a controlling stake. Mahindra owns a 75% stake in the troubled SUV maker since 2010.

“In a word, Mahindra’s stance is this: We are hands off now. Have it your way,” one of the sources told Market Insight. “It is highly likely that Mahindra will never return to the negotiation table.”

Market Insight is the capital news outlet of The Korea Economic Daily.

Even after the talks with Mahindra broke down, HAAH will continue to negotiate with Ssangyong’s creditors to buy a stake, assuming the cash-strapped carmaker will be put into court protection, the sources said.

Last month, Ssangyong filed for court receivership after it defaulted on a loan repayment of about 60 billion won and 60 million won in accrued interest to Bank of America and other foreign lenders.

But a Seoul court granted a two-month grace period to Ssangyong, allowing it to suspend debt repayments until the end of February to help it find a new investor.

Under court protection, the loss-making company will likely be required to write down its capital and reschedule debt payments, which would smooth the way for HAAH’s purchase of a stake. HAAH is an auto startup founded in 2014 by Duke Hale, a former vice president of Volvo, Mazda, Jaguar and Land Rover.

Ssyangyong is teetering on the brink of survival after logging net losses for 15 straight quarters since the first quarter of 2017, with auto sales on the decline.

Last August, Mahindra made it clear it had no plans to inject new capital into the troubled carmaker after pouring 40 billion won into Ssangyong in April of last year, and expressed its intention to give up its management rights over the carmaker.

Ssangyong decided to pay only half of its employees’ salary on time this month and next, postponing payment of the other half. 

“I have a heavy heart and feel ashamed to be driven into this worst situation,” wrote Ssangyong Motor Chief Executive Yea Byung-tae in an internal memo posted on the company website.

Write to Il-Gue Kim, Ri-Ahn Kim and Jeong Min Nam at black0419@hankyung.com
Yeonhee Kim edited this article.