JSW Group’s Sajjan Jindal and SAIC Motor Corporation have finalised terms of agreement for an alliance to acquire a stake in MG Motor India, according to a report by The Economic Times. Morris Garages (MG) Motor is a fully-owned subsidiary of China based SAIC.
According to the report, legal documentation is currently in progress, and a formal statement is anticipated around the time of Diwali. As part of the negotiations, the newly-formed alliance intends to introduce electric vehicles under its brand by January 2024. The agreement has the potential to significantly increase MG Motor India's valuation to approximately $1 billion, as stated in the report.
As per the terms, Jindal is set to hold a 32-35% stake in MG Motor India in the initial stage, while SAIC will have a majority ownership of 51%. Employees and dealers will collectively possess 6% of the ownership, with an undisclosed domestic financial institution slated to own 6-7%, according to the report.
SAIC will utilize its equity to absorb the accumulated losses, and there is an ongoing strategy to facilitate a change of control in order to access the full range of tax benefits.
Following the elimination of these losses, the intention is for SAIC to initiate an offer for sale (OFS) to progressively reduce its stockholding to a range of 38-40%. Simultaneously, Jindal will raise its stake to a range of 49-51%, and employee-dealers will acquire ownership in the range of 8-9%.
The sources further revealed that MG Motor India valuation is estimated to be around Rs 9,800 crore to Rs 12,300 crore ($1.2 billion - $1.5 billion), which is significantly lower than the initial valuation of $8-10 billion.
In India, MG Motor operates a manufacturing facility located in Halol, Gujarat, which currently has a production capacity of 120,000 units. Despite this, the company has successfully sold approximately 170,000 vehicles in the Indian market. Looking ahead, the company intends to ramp up its capacity significantly, with plans to reach 300,000 units by the year 2028.
The initial reports of Jindal's interest in MG surfaced in June 2023. According to these reports, the proposed plan, purportedly sanctioned by the Indian government, seeks to guarantee that a minimum of 51% of the equity remains in the possession of Indian entities. The Chinese side, in this arrangement, would assume a minority role, with a cap on their ownership at a maximum of 49%.
The ET report also highlighted that the new venture is also not expected to not involve JSW Steel and JSW Energy, which are the listed companies of the JSW Group.