Five days to rescue Rover as Chinese blow cold on deal

MG Rover, the only remaining British-owned volume car maker, will be forced to call in the receivers by the end of this week unless an emergency £100m loan is made available from the Government.

MG Rover, the only remaining British-owned volume car maker, will be forced to call in the receivers by the end of this week unless an emergency £100m loan is made available from the Government.

The Longbridge-based company is understood to be days away from running out of cash as talks continue in China to try to secure a rescue deal with Shanghai Automotive Industry Corporation (SAIC).

Sources close to the Chinese company indicated last night the chances of reaching agreement appeared to be worsening. They said that the acute financial difficulties at MG Rover, which they had been made fully aware of only in the last two weeks, had raised concerns about the company's future stability.

A crucial issue is the terms on which the £100m loan is made available. One source said: "If it is a bridging loan repayable in six months, then all that does is provide a stay of execution. If the loan were to be repayable after a number of years, that would be a different matter."

A collapse of the company, which employs 6,000 directly and generates thousands more jobs in the West Midlands, would be highly damaging for the Government because of the large number of marginal Labour constituencies in the area.

A team of senior Department of Trade and Industry officials, sent out to China on Thursday with the blessing of Tony Blair to try to rescue the deal, spent all weekend in talks with SAIC executives and are expected to remain in Shanghai for several more days.

Whitehall sources said the situation remained as it was on Friday when it emerged that the DTI had made the offer of the emergency bridging loan. Ministers stand ready to support MG Rover financially over a short period if a deal with SAIC is in sight. But they also recognise it is now quite possible that the Chinese will withdraw from the deal and have instructed officials to put contingency arrangements in place should MG Rover collapse. Ministers are looking at a number of job retraining schemes and other incentives to create alternative employment in the area.

DTI officials refused to comment yesterday on reports that the Department's Permanent Secretary, Catherine Bell, had advised the Trade and Industry Secretary, Patricia Hewitt, against granting the £100m loan. One source said the issue remained "hypothetical" since no money had yet been paid and would only be handed over if ministers were confident of securing a deal with SAIC. "In the end it is a judgement call which is down to ministers, which is why they are elected," one source said.

The Government has made the loan conditional on the four West Midlands businessmen who bought Rover from BMW five years ago for a symbolic £10 putting up several million pounds of their own money. The so-called "Phoenix Four", led by John Towers, a former chief executive of Rover, have made an estimated £40m from the company since the buyout in May 2000.

Two of the Phoenix directors are understood to be in Shanghai taking part in the talks with the DTI and SAIC. The DTI is being advised on the Rover bail-out by KPMG; the senior official leading the talks in Shanghai is understood to be Mark Russell, the head of the department's automotive division.

SAIC has so far given MG Rover £67m and plans to invest a further £133m to enable it to develop a new mid-sized car to replace the Rover 45. In return, the Chinese would take a controlling 75 per cent stake in the joint venture with MG Rover.

Reports over the weekend that the Phoenix Four would make £150m from a deal with SAIC were described as "plain daft" by an MG Rover spokesman. He said that if they had that kind of money then MG Rover would not be in the financial crisis it now faces. The company also dismissed claims that there was a £400m black hole in its finances arising out of its pension liabilities. MG Rover said the deficit in the pension scheme at the end of 2003 was only £67m and had fallen further since then.