Last week, M&M president (automotive and farm equipment sector) Pawan Goenka said the company may look at using its current cash reserves of around Rs 5,000 crore for Ssangyong once its gets the clearance from the M&M board.
We have some money available right nowour capex for the next three years is around Rs 5,000 crore. So we have a good cash position now. Our debt-equity ratio is also fairly low so we can raise debt...our debt-equity ratio is around 0.3 and we can go up to 0.6-0.7, Goenka said.
He said the company also had strong internal accruals. Beyond these options, the company may look at cashing in on some of the available assets, Goenka said, adding that if at all, diluting equity to raise money would be the last option.
The issue of diluting equity to raise funds for Ssanyong was speculated and it was said that the company was faced with a hard choice since any dilution would see the promoters stake falling below 26% from the current 26.31%.
M&M had surprised many with its decision in May this year to put in a letter of intent for Ssangyong Motors. Analysts have argued that over the years, Ssanyongs strong brand recall has taken a severe hit because of its bankruptcy prompting its majority Chinese partner SAIC to steadily reduce its stake in the company from 51% to only 10%.
Explaining M&Ms reasons for bidding for the company, Goenka said, Everything has a value at a price. Ssangyong fits into our scheme of things since our aspiration is to become a leading SUV player in the world. More than 85% of its sales are in the SUV segment, Goenka said. He added that despite the current cash position of Ssangyong, in 2003-04 it was a leading SUV player in South Korea with presence in many countries.
Ssangyong has presence in Western Europe, Russia and of course South Korea. If you see our presence in these countries is very low. Through Ssangyong we have an opportunity to expand into these countries, he said.
Goenka said the product portfolio of Ssangyong also did not overlap with M&M products making it an attractive buy. Ssangyong makes SUVs like Rexton and Kyron apart from an executive sedan called Chairman. M&M is a leading SUV player in India with brands like Bolero, Xylo and Scorpio in its kitty. The company sold a total of 5,095 SUVs in June 2010.