M&M up 12% after it rejects plan to infuse fresh equity in South Korean-arm

The company's board has turned down a proposal to pump in fresh equity of $406 million in its ailing South Korean subsidiary SsangYong Motor Co amid coronavirus crisis

Shares of Mahindra & Mahindra (M&M) jumped 12 per cent at Rs 316 on the BSE on Tuesday after the company’s board turned down a proposal to pump in fresh equity of $406 million in its ailing South Korean subsidiary SsangYong Motor Co (SYMC) amid the ongoing Covid-19 crisis.

“Given the current and projected cash flows, the M&M Board took a decision that the company will not be able to inject any fresh equity into SYMC and has urged SYMC to find alternate sources of funding,” the company said in a regulatory filing on Friday after market hours. The Indian auto giant holds a controlling stake in the South Korean carmaker.

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 wons ($32 million) over the next three months, it added.

It further added that M&M “will make every effort to continue supporting all other non-fund initiatives currently in place to help SYMC reduce capex, save costs, and secure funds”.

These include (without capex) free access to M&M’s new platforms, such as W601 support technology programmes, which would help reduce SYMC’s capex, assist in material cost reduction program currently underway, and help the Korean automaker’s management find new investors.

The stock of M&M has underperformed the market by falling 47 per cent thus far in the calendar year 2020 due to weak sales. In comparison, the S&P BSE Sensex has declined 33 per cent till Friday. The stock, which hit a multi-year low of Rs 246 on March 25, 2020, had touched its 52-week high of Rs 696 on April 2019.

The management attributed the weak performance to muted sales performance on account of the current lockdown related to Covid-19, and the disruption in their BS VI ramp-up plan. The latter was planned between February and March but was affected due to the challenges of parts supply from global and local suppliers, it said.