India’s largest utility vehicle maker Mahindra & Mahindra will put in a bid below $500 million for the troubled South Korean sports utility vehicle maker, Ssangyong, say banking sources close to the company. On Saturday, M&M board authorized the submission of bid to acquire majority stake in Ssangyong.
Sources close to the development say that M&M’s bid will involve equity infusion of around $150 mn into Ssangyong which will give them a majority stake in the company. Besides, M&M will take Ssangong’s debt, aggregating to around $330 mn on its books. Ssangyong’s current debt, it is learnt, is pegged at around $600 million and its lenders may have to take a partial hit in the process. Ssangyong's consolidated debt for the last financial year ended December 2009 stood at $1.02 bn.
M&M has declined to comment on the story.
M&M is expected to fund this acquisition through a combination of debt and internal accruals. M&M has cash reserves of about Rs 5,000 crore. M&M has ruled out raising money via equity dilution for this acquisition as promoters stake in M&M is currently at 26.3% and any further fund raising via equity may dilute the stake to a level below 26%, which is not desirable.
Angel Broking research analyst Vaishali Jajoo explains “Financially, right now the debt to equity ratio of M&M is at 0.4, so even if they have to raise some debt for the funding, it will go up little bit. Overall looking at the development in the last 3-4 months, what we have seen is M&M has shown an interest because they want to be a global SUV manufacturer. And I think Ssangyong has a good brand portfolio. So, it could be a positive decision for the company to bid for Ssangyong.”
M&M’s rival bidders for Ssangyong include Kolkata-based Ruia group, French auto giant Renault and Nissan alliance, South Korean private-equity fund Seoul Invest and South Korea’s Renault Samsung Corp.
But Ssangyong is still under bankruptcy protection plan and the bidders had to seek an extension of the bid submission deadline from 20 July earlier to study the company’s financials better. Samjong KPMG and Macquarie Group are handling Ssangyong’s strategic stake sale as part of its Rehabilitation Plan since Dec 17, 2009, approved by the South Korean court. The last date for submission of bid for Ssangyong now is August 10. The day of declaration is not fixed and will be estimated after evaluation of the bid documents by the company.
Source: Economic Times