Pension black hole may end Rover deal

A €580 million pension black hole could scupper a rescue deal for ailing car group MG Rover, it emerged yesterday.

Shanghai Automotive Industry Corporation (SAIC), the potential Chinese partner of MG Rover, fears it could become liable for the pension deficit if MG Rover goes insolvent after it signs a joint venture deal with the company, weekend reports said.

British government ministers have raised the prospect of offering a €145m bridging loan to SAIC to help MG Rover to stay in business until the deal with the Chinese was completed.

However, reports said the Chinese believed the government money was unlikely to affect the outcome of the deal. An adviser to SAIC said the loan would give those involved more time to negotiate an agreement, but did not mean it would be achieved, according to a report in The Observer newspaper.

No-one from MG Rover or SAIC was available to comment. It also emerged over the weekend that British trade and industry secretary Patricia Hewitt plans to over-ride civil servants’ warnings that the bridging loan would not be a good deal for the taxpayer.

Ms Hewitt is likely to ignore advice from Department of Trade & Industry (DTI) acting permanent secretary Catherine Bell that the money for the loan would be better spent on “more valuable things”, The Sunday Telegraph newspaper claimed.

The British government is believed to be concerned that failure to conclude the deal with SAIC would lose it vital votes in key Labour constituencies in the West Midlands in the forthcoming general election.

A DTI spokesman said its officials were still talking to SAIC in China to try “to establish whether a bridging loan would be an option and a help to any deal”.

He said any potential bridging loan facility would be provided under strict criteria to ensure the proper use of taxpayers’ money. He refused to say whether DTI officials would offer extra help to allay concerns about the pension deficit.

“We have not got to the stage of giving definitive advice (to ministers) about a loan,” the spokesman said.

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