Sajjan Jindal, the chairman of JSW Group, and SAIC Motor Corporation, China’s largest car company, have agreed to form a joint venture involving MG Motor India, the wholly owned subsidiary of SAIC that owns the British automotive marque Morris Garages. The deal, which is expected to be announced later this month, will give Jindal a significant stake in MG Motor India and pave the way for the launch of electric cars under the new alliance by January 202412.
What are the details of the deal?
According to sources familiar with the matter, the deal will be implemented in several phases, with Jindal’s private company initially owning 32-35% of MG Motor India in the first phase, while SAIC will retain 51%. An Indian financial institution will own around 8% equity, while Indian dealers of MG and its local employees will own 6-7%. None of the listed JSW Group entities will be involved in the deal.
The deal values MG Motor India at around Rs 7,000-8,000 crore, way below the original demand of $8-10 billion. The losses accumulated by MG Motor India so far will be written off against the equity capital of SAIC. The deal also involves a staggered plan for change of control to avail the tax benefits associated with loss-making companies2.
The joint venture plans to launch an initial public offering (IPO) of MG Motor India as an offer for sale (OFS) in which existing investors, namely SAIC, will sell shares. After the IPO, SAIC’s ownership will come down to around 38-40%, while 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 owning around 8-9%2.
Why did Jindal and SAIC decide to partner?
Jindal and SAIC decided to partner for several reasons, such as:
Jindal has been keen to enter the automobile industry and has been looking for opportunities to invest in electric vehicles (EVs). He considers China to be way ahead of any country in EVs and believes that partnering with SAIC will give him access to cutting-edge technology and expertise.
SAIC has been facing challenges in expanding its presence in India due to geopolitical tensions between India and China, regulatory hurdles, and consumer sentiment. Partnering with Jindal will help SAIC overcome these barriers and leverage his local network and reputation.
MG Motor India has been struggling to achieve profitability and scale in India due to high costs, low volumes, and intense competition. Partnering with Jindal will help MG Motor India reduce its losses, increase its market share, and diversify its product portfolio.
What are the implications of the deal?
The deal has several implications for the automobile industry in India, such as:
It will create a strong contender in the EV segment, which is expected to grow rapidly in India due to rising environmental awareness, government incentives, and consumer demand. The joint venture will leverage SAIC’s EV technology and Jindal’s renewable energy resources to offer affordable and sustainable mobility solutions.
It will increase the competition in the premium car segment, which is dominated by players like Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, etc. The joint venture will offer a range of products under the MG brand, which is known for its heritage, quality, and innovation.
It will boost the confidence of foreign investors in India’s automobile sector, which has been facing challenges due to the Covid-19 pandemic, supply chain disruptions, and policy uncertainties. The deal will showcase India’s potential as a large and lucrative market for automobiles and attract more investments from global players.
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