The signing of the term sheet will mean “that the deal is more or less agreed to, but not concluded,” according to Pawan Goenka, managing director of Mahindra and Mahindra.
The deal will have to be concluded before 28 February this year or SsangYong will go into court receivership, Goenka said in a press briefing here today.
Post the sale, Mahindra will hold 30% or less in the maker of Rexton and Tivoli SUVs.
SsangYong had filed for court receivership with the Seoul Bankruptcy Court last month after failing to repay loans of about 60 billion won (Rs 408 crore) due on December 14 to lenders including JPMorgan Chase, Bank of America and BNP Paribas.
The bankruptcy court has given the Korean company time till 28 February under Autonomous Restructuring Support (ARS) to resolve the crisis, post which its management will be taken over by the court.
The announcement comes on a day when the company also walked away from a joint venture it was working on with the Ford Motor Company for over 15 months.
Mahindra was reportedly in talks with North America’s HAAH Automotive for a stake sale in SsangYong, but the deal hit a roadblock due to disagreements on valuation, ET reported in November last year. It is unclear whether the current buyer is HAAH.
Mahindra said that the size of impairment that it will take on account of the investment in SsangYong will depend on whether the deal goes through and the agreement reached therein.
The company could have a total financial impact of Rs 1930 crore in SsangYong – Rs 980 crore in equity and Rs 930 crore in terms of debt, according to Anish Shah, deputy managing director and group CFO for the Mahindra Group.
This includes Rs 680 crores of corporate debt guarantee given by the Mumbai-based company as well as Rs 270 crore it lent to the Korean carmaker earlier this year.
“We would expect a slightly higher impairment in the case of prepackaged rehabilitation program. The key will be what is the equity value as it comes out of receivership and what is the potential haircut in debt. At this point in time, it is difficult to put specific percentages on that. By February 28, we will have a better view of that,” Shah said.
Mahindra has invested Rs 2,450 crore in SsangYong so far. The company had taken a write-off of Rs 2,781 crore on account of SsangYong and other loss-making ventures in the fourth quarter of FY20.
“We were well aware of what could be the potential write-offs to be taken when we decided not to invest any further. We are significantly better off than what we had expected in April. The decision on Ssangyong had no bearing on Ford Decision,” according to Shah.