MG Rover's survival still in doubt as talks continue in China

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The Independent Online

The survival of MG Rover was still hanging by a thread last night as talks to rescue the car maker continued in China.

The survival of MG Rover was still hanging by a thread last night as talks to rescue the car maker continued in China.

A spokesman for the embattled company insisted that "encouraging three-way discussions" had taken place between MG Rover, Department of Trade and Industry officials and executives from the Chinese car maker Shanghai Automotive Industry Corporation (SAIC).

"Very good progress has been made in the last 24 hours," he said.

But it remained unclear whether sufficient progress had been made to clear the way for the payment of a £100m government loan to MG Rover to resolve the company's imminent cash-flow crisis. Without the loan, MG Rover is likely to have to call in the receivers by the end of this week. Last night the two companies were waiting for the DTI to make an announcement.

Sources at both car makers said they were puzzled by reports yesterday, based on briefings from the DTI, that the talks had stalled over concerns about MG Rover's solvency. One insider said the DTI had "screwed up" and caused enormous problems.

But there was still an air of pessimism within the SAIC camp about whether a deal could be clinched because of Chinese concerns over the long-term viability of MG Rover's parent company Phoenix Venture Holdings.

John Towers, the head of Phoenix, said "very extensive personal commitments" were being made by him and other directors to secure a deal. "I want to underline the continued commitment from ourselves and from SAIC for a successful outcome to our joint venture," said Mr Towers, who is at the talks in Shanghai.

The Government is anxious for a collapse of MG Rover not to turn into an electoral liability given the large number of marginal Labour constituencies close to its Longbridge plant in Birmingham. The factory employs 6,000 people directly but three times that number of jobs in the local economy are dependent on MG Rover. Yesterday Gordon Brown threw his weight behind efforts to rescue the company, saying the Government will continue to "do what we can to help" the deal.

If a rescue deal can be put together, SAIC would take a 75 per cent stake in the joint venture with MG Rover and begin producing its models in China. The Shanghai-based company would also provide an initial £200m of funding to help MG Rover develop a new medium-sized car to replace the ageing Rover 45. But the stumbling block in negotiations so far has been the concern of the Chinese that they would be left with huge liabilities if MG Rover were to go bust subsequently. These liabilities include the £67m deficit in its pension scheme and a £500m loan which Phoenix received from BMW when it acquired MG Rover in May 2000.

Jon Moulton, a managing partner at the venture capital firm Alchemy Partners, which pulled out of talks to buy MG Rover from BMW, said: "I would not buy it for a pound. I can't understand why the Chinese are interested; it is just a loss-making business with substantial liabilities."