Ending months of negotiations, JSW Group chairman Sajjan Jindal and Shanghai-based SAIC Motor Corp have finalised the terms of their agreement for a grand alliance involving MG Motor India, the wholly owned arm of the Chinese auto major that owns the British automotive marque Morris Garages, people aware of the cross-border deal told ET. Valuations of MG’s local business could just touch USD 1 bn.
A formal announcement, unless last minute changes were to take place, is due later this month or by Diwali. The plan is to schedule the rollout of electric cars under the aegis of the new corporate alliance by January 2024. Both sides are currently engaged in legal documentation.
The broad agreement, to be implemented in several phases, says a private company of Jindal will initially own 32-35% of MG Motor India in the first phase, with SAIC owning 51%. An Indian financial institution will own around 8% equity, while Indian dealers of MG and its local employees will own 6-7%. ET was the first to report in its June 14 edition the deal details and that none of the listed JSW Group entities will be involved in the deal.
The losses accumulated thus far will get written off against the equity capital of SAIC. ET could not independently verify the name of the domestic financial entity that will own stock in the new capital structure.
To avail the tax benefits associated with loss-making companies, a staggered plan for change of control is being considered.
Once the losses get wiped out, an IPO of MG Motors India, proposed even before the alliance talks began, will be launched as an offer for sale (OFS) in which existing investors, namely SAIC, would sell stock. After the IPO, the Chinese ownership will come down to around 38-40% over time, while Sajjan Jindal’s ownership will go up to 49%, with an eventual pathway to 51%. The company’s employees and dealers in India may end up owing around 8-9%.
With losses on the rise, the valuation of MG Motors India is expected to get finalised at INR 7,000-8,000 cr, way below the original demand of USD 8-10 bn.
Indian Majority Ownership
With Chinese ownership below 49%, MG Motors will cease to be a Chinese company. The board and management will also have majority Indian representation. The plan is to also have a new brand identity that will represent the corporate identities of both partners.
The company is also looking to appoint a new CEO for the venture.
“The objective from the beginning has been to make it an Indian company. MG Motors is in dire need of expansion capex,” said an official privy to the discussions. The proposed IPO will further enhance Indian shareholding in the company, industry observers said.
A JSW spokesperson declined to comment. To be sure, the deal does not involve any of the listed entities of the metals-to-infrastructure conglomerate.
“We are evaluating all options to grow our presence in the country and create a win-win situation for all stakeholders while keeping customers’ interests at the core,” an MG Motors India spokesperson told ET. “This would encompass bringing world-class technology, enhancing localisation, and retaining pole position in customer satisfaction for both sales and aftersales. We decline to comment on the query as it is speculative”.
Sources said MG India managing director Rajeev Chaba met the JSW top brass a fortnight ago to finalise the terms of agreement. Issues over technology transfer and royalty have dragged matters thus far, prompting JSW Group to chalk out a plan B in case talks with SAIC fail.
Brand Custodians
The new alliance will continue to pay royalty to SAIC until the local company develops its own intellectual property and software, said people on the condition of anonymity as the discussions are still private.
Earlier in May, Chaba made a public statement that MG Motor India expects an investment of around INR 5,000 cr from an Indian partner this year. “We plan to dilute our shareholding. The majority, more than 50% share, will be owned by Indians in the next two-three years,” he had said.
MG has a 1.26% market share in the passenger vehicle segment in India in FY23.
Since entering India through its British brand MG in 2019, SAIC has invested close to INR 5,000 cr in India and was ready to infuse a similar amount, but the proposal has been stuck since 2020 after border tensions soured ties between India and China. Since then, MG Motor has been relying on external commercial borrowings from the parent company to support operations in India.
Despite hard-selling the British credentials of the MG marque and actor Benedict Cumberbatch as brand ambassador at the time of its 2019 launch, the Chinese ownership has not been lost on the policymakers.
But with financial roadblocks making growth and expansion more challenging, MG Motors India’s volumes and installed capacity have largely stagnated in the past two years. Sales volume reached only up to 50,000 units even though it received encouraging response for its early models. The company had launched India’s first internet-enabled sport utility vehicle (SUV) vehicle with autonomous level 1 and superior technology electric vehicle (EV) models.
In the past few months, the company largely focused on profitability and broke even at the cash level in March 2023. The cumulative loss since FY18 has been around Rs 1,720 crore. The company’s turnover was INR 5,255 cr in FY22 and statements submitted with the ministry of corporate affairs showed the company had a net worth of INR 456 cr.
To date, the company has sold around 170,000 units in India. Over the past 15 months, average sales volumes of MG Motors have been in the range of 3,800-4,200, although this March it recorded its highest ever retail sales of 6,051 vehicles.
The company has its manufacturing facility at Halol in Gujarat. It has an annual production capacity of 120,000 units. MG had planned to set up a second unit at the same location, aiming to take its cumulative installed capacity to 300,000 units by 2028.
Separately, JSW Group has also been in pursuit of Ford’s plant in Chennai that has been up for grabs. Industry analysts believe the new JV is likely to aggressively vie for that facility for expansion going head to head with Mahindra and Mahindra, the other contender. MG has sold 48,866 units in FY23. This amounted to a growth of 21% when compared to FY22’s sales, industry data showed.
