Talks to rescue MG Rover through an alliance with China's biggest automotive group appeared to have stalled last night over the question of the UK car maker's solvency, casting even greater doubt over the embattled company's survival.
After a fourth day of negotiations in China between Department of Trade and Industry officials and executives of Shanghai Automotive Industry Corporation (SAIC), UK government sources said the onus was on the four directors of MG Rover's parent company, Phoenix Venture Holdings (PVH), to come up with guarantees to break the deadlock.
DTI officials said it now appeared that PVH would remain technically insolvent, even after the provision of an emergency £100m bridging loan from the Government. "The directors have got to come up with something to resolve this. The ball is in their court," said one source close to the talks.
The so-called Phoenix Four, who bought MG Rover from BMW five years ago for a symbolic £10, have already been told they will have to contribute "several million pounds" of their own money towards any rescue deal. The four, led by John Towers, a former chief executive of Rover, have made an estimated £40m from MG Rover since the buyout in May 2000.
They are now being asked to come up with further guarantees about the solvency of the parent company. SAIC is understood to want a commitment that PVH will be able to fund its involvement in the alliance for at least two years. Under European Union state aid rules, the £100m bridging loan would need to be repaid within six months. Any longer than that and it would be classed as subsidy and would therefore breach Brussels' strict state aid regime.
The latest setback in the talks came after a day of rumour, speculation and conflicting claims. At one point, MG Rover executives were put on standby for an announcement from the DTI that the negotiations had been concluded "positively". Union sources were briefing the company that the government intervention appeared to have succeeded in brokering a deal.
It is not known whether talks will resume today but what is known is that MG Rover is running out of time and cash. Unless the £100m loan is made available by the end of this week, it is expected that receivers will have to move into the car maker's Longbridge plant on the outskirts of Birmingham. A collapse of the company would lead to 6,000 direct jobs losses and thousands more among suppliers in the West Midlands, dealing a damaging blow to the Government.
Some observers were suggesting last night that ministers now accepted MG Rover could not survive and were positioning themselves to pin the blame on its four directors for concealing the true state of the company's finances. Whitehall sources said SAIC and the DTI had been shocked to discover in recent days that PVH's finances were in an even more parlous state than they had been led to believe.
Sources close to SAIC said it was concerned about the deficit in MG Rover's pension fund and the firm's ability to fund the 2,000 redundancies which would be required.
Ernst & Young has investigated PVH on behalf of SAIC, while KPMG has carried out a similar exercise on behalf of the DTI. Both accountancy firms are understood to have concluded that it is technically insolvent.
No one was prepared last night to completely write off the prospects of an eleventh hour deal being stitched together. But hopes appeared to be receding fast.Reuse content