Inability to sell Ssangyong leads to ₹1,214-cr impairment in Q3

Mahindra & Mahindra on Friday said it has undertaken an impairment of ₹1,213.98 crore on its consolidated balance sheet in the December quarter, owing to its inability to complete the sale of its South Korean subsidiary Ssangyong Motor Co (SYMC).

This includes the combined earnings of M&M and its subsidiary Mahindra Vehicle Manufacturers (MVML).

“The company assessed the recoverable value of its exposure related to SYMC and has recognised an impairment of ₹1,210.48 crore in the standalone financial results and presented the same under ‘exceptional items’ in the financial results,” M&M said in a regulatory filing,

In the consolidated financial statements, the loss from operation of SYMC including impairments aggregating to ₹1,938.35 crore and gain on deconsolidation of SYMC as a subsidiary aggregating to ₹940.03 crore resulted in a net loss of ₹998.32 crore, which has been presented under profit/(loss) from discontinued operation, it said. Out of this net loss, ₹563.84 crore is attributable to the company.

SYMC filed an application before the bankruptcy court for commencement of rehabilitation proceedings on December 21, 2020. It is now preparing documents and plans to submit a pre-packaged rehabilitation plan with equity investment from an investor and debt from local lenders. There is no increase in its own exposure as compared to Q2 FY21, M&M said.

“The key factor in this quarter is that there is a ₹1,214 crore impairment. Of that, the SYMC impairment is ₹1,210 crore. And that is something that we have done as SYMC will now become a discontinued operation as it filed for bankruptcy on December 21,” said Anish Shah, Deputy Managing Director and Group Chief Financial Officer, M&M.

When the company had filed for rehabilitation on December 21 — which is essentially a bankruptcy process — it had filed for an Autonomous Restructuring Support (ARS) programme which is a court designed process. “At that point of time, it seemed likely that a buyer would come in and there were negotiations that were on. The court approved the ARS on December 28th, and gave a period of 60 days to get that done. We had negotiations (about the) ARS process and there were a few areas where the buyer wasn’t comfortable with and therefore, what we understand now is that SYMC is working with the buyer to look at a pre-packaged bankruptcy plan and that is in process at this point in time,” Shah explained.

The implication of that is that the ARS process will stop and the pre-packaged bankruptcy plan will continue forward, he added.

“Typically, after it’s filed, it can take one-two months. The filing is likely to be done by the end of this month. As that gets filed, the court receiver essentially takes over that process, and we will continue to see that progress,” said Shah.

We will continue to work with the potential buyer, provide all the support required, and help close the deal because that’s something that’s beneficial for the company, said Shah.

Capital allocation

M&M has reiterated its focus on capital allocation in recent times. “The critical part also for us is to look at profitable growth and that’s where the capital allocation policy has come into play. We are effectively going back to the fiscal discipline that we had for a very long time,” Shah had said on January 1, whilst adding that this does not mean that the company will be shying away from JVs and alliances in the future. On Friday, it said it has identified companies under three categories.

Category A has entities with a clear path to an RoE of 18 per cent: Magna and Peugeot Motorcycles. Category B has entities that show a quantifiable strategic impact: Mistubishi Agricultural Machinery and Sampo Rosenlew. Category C has entities which show an unclear path to profitability, and hence M&M will be exiting those businesses: SYMC , Gipps Aero, Genze and MFCS.

“Category C has a number of companies that we will not be investing in as we go forward,” said Shah.

“Two companies have been restructured: one is MANA and the other is Automobili Pininfarina...What we have essentially done is make both these companies focus on elements that are more strategically important for Mahindra. At this point in time, we are not certain that they will have a path to an 18% ROE, but there is strategic benefit that comes with it as well,” said Shah.

It has also identified as ‘work in progress’ two of its Turkish companies, Erkunt and Hisarlar.

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