Mahindra & Mahindra (M&M) on Friday said its board has rejected a proposal to inject any fresh equity into its loss-making Korean arm SsangYong Motor Company (SYMC).
The management and labour union of SYMC had sought a funding of 500 billion KRW (USD 406 million) from the Mumbai-based auto major over the next three years.
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"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 in a statement.
However, with a view to enable SYMC to have continuity of business operations, whilst they are exploring alternative sources of funding, the board has authorised the M&M management to consider a special one-time infusion of up to 40 billion KRW (USD 32 million) over the next three months, it added.
The board hoped that the employees and management at SYMC understand the magnitude of the unfortunate and unforeseen crisis created by the coronavirus, which has compelled it to take the difficult decision, the statement said.
M&M would, however, make every effort to continue to support to all other non-fund initiatives that are currently in place to help SYMC reduce capital expenditure (capex), save costs and secure funds, it said.
The decision was taken by the board in a special meeting to review investment SYMC and at the same time to discuss the approach to capital allocation in light of the COVID-19 impact.
The board noted that large parts of the global economy are under shutdown and India particularly is under an unprecedented 21-day complete lockdown.
The board also initiated several measures to tighten capital allocation norms and ensure that M&M remains strong through the current crisis and beyond.
Mahindra had acquired the loss-making SsangYong in 2010 but failed to turn it around since then despite several attempts.
M&M holds nearly 75 per cent in the Korean company now and has since invested over USD 110 million.
SsangYong has been struggling with deteriorating earnings since 2017 when it slipped into the red with a net loss of 66 billion wons as against a net profit of 58 billion wons in 2016.
In 2018, its net loss rose to 62 billion wons and then ballooned to 341 billion wons in 2019.
This story has been published from a wire agency feed without modifications to the text.