M&M seals $470m Ssangyong deal

CHENNAI: Mahindra & Mahindra has finally sealed its 522.5 billion won (approx $470 million) deal for the ailing Korean auto major Ssangyong. The SUV-to-software Indian conglomerate sealed the deal on February 9 and 10 when it was formally allotted 70% of the Korean company's total shareholding. The major creditors of Ssangyong as well as the Korean courts had already approved the deal end of January.
In effect, the Ssangyong deal has turned out to be a bargain for M&M given that part of the money it is pumping into the company will be in the form of debt. Speaking to TOI, Pawan Goenka, M&M president-automotive & farm equipment division, said: "The 522.5 billion won that we are paying is divided into debt and equity. About 82% (around $385 million) will fund our equity acquisition while the remaining 18% (around $85 million) is debt which is returnable to M&M." In other words, M&M is picking up 70% stake in Ssangyong for around $385 million.
The deal cruised through after Ssangyong's creditors agreed to a haircut to clean up its books. Ssangyong's 613 billion won debt, nearly 100 billion won more than the total amount paid by M&M, was the biggest and most crucial factor in this deal. Sources say that in the end, Ssangyong's "unsecured creditors" decided to take a 100 billion won haircut, allowing the M&M money to clean up the company's books. "Ssangyong comes debt free to us except for the Mahindra debt and some working capital loans," said Goenka. We will take another one month to complete all the formalities."
With a debt-free book, Ssangyong's debt equity ratio will be low enough for the company to raise fresh money for working capital and product development. On the Mahindra side, there have been some "fund raising" though not specifically for the Ssangyong deal. M&M's bargain buy means it still has "some cash left over" after the deal, said a company source. M&M has decided it will maintain an arms length relationship with Ssangyong. "We have decided that the two companies will work independently," Goenka said M&M's entire top brass, including Goenka, are currently in Seoul, signing the deal. M&M has already indicated it will retain a largely Korean top management for Ssangyong which will continue to be publicly listed in Korea. M&M clinched the Ssangyong deal nearly six months after it entered the fray for the troubled auto maker. Last August, M&M signed a pact to acquire Ssangyong after being chosen as the preferred bidder in a race that included Kolkata-based PK Ruia group and some local Korean entities. M&M has already announced that it is working towards introducing products from the Ssangyong stable in India by the end of this year.