Mumbai: JSW Group chairman Sajjan Jindal and SAIC Motor Corp, based in Shanghai, have reached a final agreement for a strategic alliance involving MG Motor India, the wholly owned subsidiary of SAIC that owns the British automotive brand Morris Garages, according to sources familiar with the deal. The local business of MG could be valued at approximately $1 billion.
An official announcement is expected later this month or by Diwali, barring any last-minute changes. The plan is to launch electric cars under the new corporate alliance by January 2024. Currently, both parties are working on the legal documentation.
The agreement, which will be implemented in phases, states that a private company owned by Jindal will initially hold 32-35% of MG Motor India in the first phase, while SAIC will hold 51%. An Indian financial institution will own around 8% equity, and Indian dealers and employees of MG will own 6-7%. This deal excludes any involvement of JSW Group’s listed entities.
The losses incurred by MG Motors India will be resolved through SAIC’s equity capital. The name of the domestic financial entity that will own stock in the new capital structure is yet to be verified independently.
A staggered plan for change of control is being considered to take advantage of the tax benefits associated with loss-making companies.
Once the losses have been offset, MG Motors India will launch an IPO in the form of an offer for sale (OFS), in which existing investors, including SAIC, will sell their stock. Following the IPO, the Chinese ownership will gradually decrease to around 38-40%, while Jindal’s ownership will increase to 49%, with a potential pathway to 51%. Indian employees and dealers may hold approximately 8-9%. The valuation of MG Motors India is expected to settle at Rs 7,000-8,000 crore, significantly lower than the original demand of $8-10 billion.
Indian Majority Ownership
With Chinese ownership below 49%, MG Motors will no longer be considered a Chinese company. The board and management will also have predominantly Indian representation. Additionally, a new brand identity representing both partners’ corporate identities will be established.
The company is also in search of a new CEO for the venture.
An official involved in the discussions expressed, “The objective from the beginning has been to make it an Indian company. MG Motors is in dire need of expansion capital expenditure.” Industry observers believe that the proposed IPO will further increase Indian shareholding in the company.
A spokesperson for JSW declined to comment, while an MG Motors India spokesperson stated that the company is evaluating options to expand its presence in the country.
The deal negotiations have faced obstacles, such as technology transfer and royalty issues. JSW Group has developed a backup plan in case the talks with SAIC fail.
Brand Custodians
The new alliance will continue to pay royalty to SAIC until MG Motors India develops its own intellectual property and software.
In May, MG Motor India’s managing director Rajeev Chaba announced that the company expects an investment of around Rs 5,000 crore from an Indian partner this year. He stated, “We plan to dilute our shareholding. The majority, more than 50% share, will be owned by Indians in the next two-three years.”
MG currently holds a 1.26% market share in the passenger vehicle segment in India in FY23.
Since its entry into India through the MG brand in 2019, SAIC has invested nearly Rs 5,000 crore, and the company was ready to invest a similar amount. However, due to border tensions between India and China, the proposal has been on hold since 2020. To support operations in India, MG Motor has relied on external commercial borrowings from its parent company.
Despite emphasizing the British heritage of the MG brand and having actor Benedict Cumberbatch as its brand ambassador during the 2019 launch, the company’s Chinese ownership has not gone unnoticed by policymakers.
With financial obstacles hindering growth and expansion, MG Motors India’s volumes and installed capacity have stagnated over the past two years. Although the company received a positive response for its early models, sales volume only reached 50,000 units. The company’s focus on profitability led to break-even at the cash level in March 2023. However, the cumulative loss since FY18 stands at approximately Rs 1,720 crore. The company’s turnover in FY22 was Rs 5,255 crore, and its net worth was Rs 456 crore, as reported to the Ministry of Corporate Affairs.
MG Motors India has sold approximately 170,000 units in India to date. Its average sales volumes over the past 15 months range from 3,800 to 4,200 units, with the highest ever retail sales of 6,051 vehicles recorded in March.
The company’s manufacturing facility is located in Halol, Gujarat, with an annual production capacity of 120,000 units. MG had plans to set up a second unit at the same location to increase its cumulative installed capacity to 300,000 units by 2028.
On a separate note, JSW Group has shown interest in acquiring Ford’s plant in Chennai. Analysts believe that the new joint venture will aggressively compete for the facility, going head to head with Mahindra and Mahindra.
In FY23, MG Motors India sold 48,866 units, which represents a 21% growth compared to the previous year.
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