The Board of Mahindra & Mahindra (M&M) has refused South Korean subsidiary SsangYong's demand for a fresh equity infusion of around $400 million, in a special meeting held on April 3.
In the light of the impact of coronavirus pandemic, a slowdown in global economies and the 21-day lockdown in India, the board has initiated several measures to tighten capital allocation norms. The move is to ensure that "M&M remains strong through the current crisis and beyond".
The management and Labour Union of SsangYong Motor Company (SYMC) had sought a fresh injection of equity from M&M to help the company fund its requirements amounting to 500 billion KRW or $406 million over the next three years.
"After lengthy deliberation given the current and projected cash flows, the M&M Board took a decision that M&M will not be able to inject any fresh equity into SYMC and has urged SYMC to find alternate sources of funding," the auto major said.
"However, with a view to enable SYMC to have continuity of business operations, whilst they are exploring alternate sources of funding, the board has authorised the M&M management to consider a special one-time infusion of up to 40 billion KRW ($32 million) over the next three months,” the statement read.
The board has also enlisted several other non-fund initiatives to help SYMC maintaining continuity in business, reduce capex, save costs and secure new investors. M&M will grant SsangYong capex-free access to its new platforms such as the W6012, provide technology support programmes to help reduce the company's capex, and support a material cost reduction programme that is currently underway.
The company noted, "The Board hoped that the employees and management at SYMC understand the magnitude of the unfortunate and unforeseen crisis created by the COVID-19 virus, which has compelled it to take the difficult decision."