Indian carmaker Mahindra & Mahindra said yesterday it would use its purchase of South Korea’s Ssangyong Motor to become a global player in the sport utility vehicle (SUV) market.
Pawan Goenka, president of Mahindra’s automotive and farm sector, said the merger would help both companies expand in the global market.
“We believe that Ssangyong and Mahindra make powerful companies to create a global SUV brand,” he told reporters after the Indian company signed a preliminary agreement to buy a controlling stake in Ssangyong.
Ssangyong, South Korea’s smallest carmaker, is mainly a manufacturer of low-priced but robust SUVs such as “Rexton,” “Kyron” and “Actyon” that sell globally. It also makes sedans.
It was granted court protection from creditors in February last year after rising oil prices and slowing demand due to the global crisis hit SUV sales and former Chinese parent Shanghai Automotive Industry Corp (上海汽車工業) declined to inject more funds.
Ssangyong has struggled to stay afloat since a violent strike over job cuts disrupted production for almost 80 days last year.
“Two companies are very compatible. We have similar size and we both are very SUV-focused,” Goenka said.
The Indian firm will keep Ssangyong’s current management after the acquisition and provide “financial stability,” he said.
“We need to bring Ssangyong back to its glory. We believe it’s a very strong brand,” he said, adding Mahindra would bring in more people in research and development.
Mahindra has ample cash reserves to finance the costly takeover without help from outside investors, he added.
He declined to reveal the takeover cost, which analysts say will be more than 500 billion won (US$423.3 million), or the size of the stake Mahindra will buy.
Mahindra’s vice chairman and managing director, Anand Mahindra, said his company had cash reserves of more than US$500 million.
“We intend to be here as a long-term player, so we are not looking to talk to any financiers for the purpose of financing this acquisition,” he said.
The Indian’s firm’s debt-to-equity ratio stands at 0.3 percent, one of the lowest in the industry, he said.
It plans to launch some of Ssangyong’s signature models to India, which is Asia’s third-largest car market and is enjoying robust growth, the vice chairman said.
“Ssangyong Motor will have a good chance in India, where demand for sport utility vehicles is fast rising,” Mahindra said.
If the deal goes through, Mahindra would become the second Indian carmaker to enter the South Korean market after Tata Motors, which bought truck maker Daewoo Commercial Vehicle in 2004.
Due diligence for the Ssangyong deal is expected to begin next month. A Mahindra executive said earlier this month that a definitive agreement was expected in November.
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