Doubt cast on Mahindra’s Ssangyong bid

The process of finding a new majority shareholder for the ailing sport utility vehicle specialist Ssangyong Motor Co. picked up pace last week when the Indian carmaker Mahindra and Mahindra Ltd. was selected as the preferred bidder.

However, the Indian firm’s bid prompted worries among local media and activists over a repeat of an ill-fated takeover of Ssangyong by China’s Shanghai Automotive Industry Corp.

SAIC bought majority stakes in Ssangyong in 2004, but the Korean firm once again ended up under bankruptcy protection early last year, for which lack of investment from the Chinese firm has been widely blamed.

SAIC is also accused of stealing hybrid electric vehicle technologies from Ssangyong. 

Ssangyong is hoping for a preliminary agreement with Mahindra by the end of the month and sign a contract for the sale in November. 

Mahindra’s bid is unknown but Ssangyong has a market capitalization of about 365 billion won ($310 million) and about 743 billion won in debt, and Mahindra group’s chief financial officer Bharat Doshi was quoted by Indian media as saying that its bid will cover most of Ssanyong’s debts, allowing Mahindra to acquire a “a debt-free company.” 

In addition, news of the company’s executive vice president for finance V.S. Parthasarathy visiting Korea to confer with local financial institutions raised concerns that Mahindra may be looking to rely on borrowed funds to pay for its stakes in Ssangyong, as did SAIC, despite having sufficient cash reserves, a factor which is said to have played an important role in tilting the balance for the Indian firm in its selection as the preferred bidder.

According to Mahindra’s financial statement for the fiscal year ending March 31, 2010, the company’s cash and bank balances came in at 174.3 billion rupees ($3.7 billion) for the period.