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Indian Company Closer to Acquiring Bankrupt South Korean Vehicle Maker


Mahindra & Mahindra vice chairman Anand Mahindra at Seoul news conference, 23 Aug 2010

Mahindra & Mahindra vice chairman Anand Mahindra at Seoul news conference, 23 Aug 2010

An Indian utility vehicle maker has signed a memorandum of understanding to acquire a majority stake in South Korea's Ssangyong Motor. A Chinese takeover of the bankrupt vehicle maker in 2004 ended in failure. But Mahindra and Mahindra is confident its bid will succeed.

Troubled South Korean automaker Ssangyong says Mahindra and Mahindra now has the exclusive right to negotiate to take it over. No financial details have been announced but market analysts expect that a controlling share of Ssangyong will cost Mahindra more than $400 million.

The Indian company's vice chairman, Anand Mahindra, says it will not need help from banks or private equity investors for the deal. "We are more than capable of funding this acquisition entirely out of our own resources," he said.

Mahindra said Monday in Seoul that his company has $500 million in cash reserves and a low debt-to-equity ratio, among other assets, to fund the deal.

Ssangyong filed for court protection from creditors 18 months ago. Before that, its former parent, Shanghai Automotive Industry Corporation, decided not to put more money into the company. The Chinese company lost control of Ssangyong during the bankruptcy process.

The South Korean automaker since then has faced declining sales and a violent strike over job cuts.

Anand Mahindra says the past will not affect the purchase. "We're optimistic, despite perceptions of the kind that you spoke about. We believe that we have an ideal marriage here," he said.

Mahindra executives stopped short of promising to hire back fired employees. But they pledge new hiring for research and development. They also intend to leave the company in the hands of local management, saying Korean executives can best run the company.

Shanghai Automotive was portrayed here as exploitative and culturally insensitive. The Chinese company faces a lawsuit for alleged mismanagement, including stealing technology from Ssangyong.

Mahindra manufactures a range of vehicles from two-wheel scooters to large trucks. It is the world's largest maker of tractors.

Ssangyong is South Korea's smallest carmaker, focusing on low-priced suburban utility vehicles.

If the deal is completed it will be the second time an Indian company has entered the automotive manufacturing market here. Tata Motors purchased Daewoo Commercial Vehicle in 2004.

Mahindra executives say they would like to begin selling Ssangyong's off-road vehicles in India within 18 months.

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