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    A trade union could derail Haah Automotive's bid for SsangYong

    Synopsis

    The company’s labour union could resist the incoming partner, Haah for having the backing of Chinese auto company said sources in the know. Chery has a technical tie up with Haah which might be perceived as an indirect investment into SsangYong.

    SsangYongGetty Images
    MUMBAI: A recalcitrant trade union wary of Chinese car maker Chery’s tacit support to Haah Automotive Holdings Inc coupled with the stiff terms of debt refinancing may come in the way of a change of control in SsangYong Motors even as Mahindras are battling against time to revive their ailing Korean venture.

    Last week, Haah Automotive made an “initial” offer of $258 million for a substantial stake in SsangYong Motors.

    But the company’s labour union could resist the incoming partner, Haah for having the backing of Chinese auto company said sources in the know. Chery has a technical tie up with Haah which might be perceived as an indirect investment into SsangYong.

    "Chery has no investment or ownership stake in HAAH, " clarified a Haah spokesperson. Ssangyong did not respond to queries from ET.

    Haah has also sought an extension of the loan repayments and their terms might not get acceptable to the lenders. These negotiations are expected to make it difficult for Mahindra to exit Ssangyong easily, said a person in the know.

    SsangYong is in desperate need of funds to stay afloat post parent company Mahindra deciding to let go of its control.

    Banking sources told ET that while the initial amount will be used to seek extension of SsangYong’s debt repayment the lenders have made it clear that the incoming investor in the company will have to clear the dues upfront if Mahindra cedes control.

    Banks like JPMorgan, BNP Paribas, Bank of America among others have a 260 mn dollar (306 billion won) exposure .

    Mahindra currently owns 74.65 percent of cash trapped Ssangyong. Samsung Securities and its global partner Rothschild have been brought on board to help find a suitor for SsangYong.

    After paying Rs 2,100 crore ($463 million) for the purchase of the Korean car maker a decade ago and investing over $110 million this bid amount by Haah is considered too low and may hit a valuation deadlock. However Mahindra may look at it as an initial offer to get discussion started, said another person in the know.

    Interestingly Mahindra acquired Ssangyong , a bankruptcy protected asset then from its Chinese parent SAIC.

    HAAH may not have enough money to become a major shareholder of SsangYong with only 23 billion won in annual sales, with SsangYong needing 500 billion won to normalize its operations, said a person close to the development.

    HAAH Automotive Holdings , purchases various vehicle assemblies from Chery which, along with parts sourced in North America are assembled in an American factory where the final vehicles are produced. These products are sold under the brand name VANTAS in North America. Informed sources say the aim is to close the deal this month so that vehicle exports to North America can start from October, allowing SsangYong Motor to make an inroad into the U.S. market.

    Mahindra’s board moved a special resolution at its AGM last month to reduce its shareholding in SsangYong to less than 50%, an indication of a new investor coming in rather than a complete sell out. The board last April rejected a Rs 3300 crore turnaround plan for SsangYong, pushing the Korean car maker into deep financial distress.

    Recently, SsangYong's external auditor refused to sign its financial statement, citing discrepancies and its “doubtful existence” even as the automaker posted a 98.6 billion won ($82.3 million) operating loss in the first quarter of 2020, and is likely to sink deeper into the red in the second quarter.

    SsangYong continues to report net losses for the past 14 quarters .From January to July, it sold 56,846 vehicles, down 28% in the year-ago period.


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