Border woes effect? China-owned MG Motor likely to dilute shareholding in India, reports say

MG Motor is a British brand that was acquired by China’s largest automaker SAIC Motor. SAIC entered the Indian market through the MG Motor brand and launched its first car here in 2019.

While MG Motor’s cars have found success with Indian consumers, the company’s proposal to bring more capital into India from its parent to scale operations had reportedly run into a roadblock.

The Ministry of Corporate Affairs (MCA) had asked MG Motor India to explain certain alleged irregularities in its books, people familiar with the development told ET back in November.

The MCA, through its registrar of companies (RoC), had summoned the company’s directors and its auditor Deloitte to explain certain alleged audit deficiencies that had been discovered during the course of the probe.

MG Motor had said that it has a notice seeking clarifications primarily on why it had reported operational losses for its first year of operations, 2019-2020.

The Indian government had heightened scrutiny on direct investments from countries sharing a land border with India at the peak of the Covid-19 pandemic in 2020. MG Motor has been awaiting approvals for around two years now and has started looking for alternative sources of capital, including from capital investors, ET reported in July.Earlier, three mobile phone makers with Chinese ownership – Oppo India, Xiaomi Technology India and Vivo Mobiles India – had been served notices for an investigation into alleged duty evasion, finance minister Nirmala Sitharaman informed the upper house of the parliament in August.

Localisation drive

The company plans to begin work for a second factory beyond its current plant at Halol in Gujarat, MD & CEO Rajeev Chaba said as per TOI report.

Chaba said that MG wants to drive strong localisation across its operations. “Our theme is to Indianise more and more in terms of everything that we do. This includes localisation of management, localisation of products, higher local production, and even supporting and nurturing skilling,” he said.

To support long-term expansion, the company needs a credible financing option. “Beyond two years, we would need money for a second plant. For this, we will look to find a strategic partner or investor, and may be go for an IPO.”

“We are hopeful to become profitable and generate cash from this year onwards. To meet our short-term expansion and support new product launches, we will manage through working capital, external commercial borrowings and internal cash generation.”