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GM to buy Daewoo assembly assets — Production of mini-car Chevrolet Spark to begin next year

Our Bureau

New Delhi/Mumbai , March 3

GENERAL Motors Corporation today said that it has offered to purchase the passenger car assembly assets of Daewoo Motors India Ltd (DMIL) and the principal creditors of the Surajpur-based DMIL (ICICI Bank, IDBI and Exim Bank) have accepted the offer, subject to approval of the respective boards of General Motors, the creditors, and judicial and governmental authorities. Pursuant to such sale GM would purchase 100 per cent of DMIL's car assembly assets.

A General Motors India spokesperson said that the final purchase price will be decided after conducting due diligence at the Surajpur facility, which will be completed in the next 2-3 months.

A statement issued by General Motors said that the plant would be used for the assembly of a mini-car for the Indian market, and that following refurbishment, production is expected to begin next year. The Surajpur facility has an annual manufacturing capacity of 85,000 units.

"We are pleased and excited about the opportunity to grow our business and presence in India. This facility will allow us to produce a new generation of cost-competitive vehicles that can be marketed through our Chevrolet distribution channel," said Mr Frederick A. Henderson, GM Group Vice-President and President of GM Asia Pacific.

According to industry sources, the auction process for the car assembly plant was reduced to a one-horse race due to GM's agreement with the lenders (struck a week ago) to bid for the entire facility. "They are interested in all the eight sub lots," an official at one of the financial institutions said.

The facilities of Daewoo India were not included in the global bailout of the bankrupt Daewoo Motors by General Motors about two-and-a-half years ago, leading to a subsequent stoppage in production at the Indian operations.

"The buyout of the Indian operations was not found to be economically viable at that time and Daewoo India also had huge liabilities. However, our outlook for the Indian market has now changed and the acquisition falls in line with our strategy for the Indian market," Mr P. Balendran, Vice-President (Corporate Affairs), General Motors India, said when asked about the timing for the purchase.

According to industry sources, General Motors will use the Surajpur facility to roll out the mini-car Chevrolet Spark (erstwhile Daewoo Matiz).

Meanwhile, Daewoo India is learnt to have a cumulative debt of about Rs 1,100 crore and total liabilities to the tune of about Rs 5,000 crore. However, the present deal with General Motors does not entail the company to share any part of the liabilities. Domestic lenders led by ICICI Bank have permission from the Debt Recovery Tribunal to sell Daewoo Motor's assets.

Against DMIL's estimated asset value of Rs 3,000 crore, banking sources reckon the assembly plant agreed for sale to GM at best contributes 40 per cent. The remaining 60 per cent is vested with the company's engine and transmission plant. Banking sources add that the engine and transmission unit is also comparatively less depreciated.

Meanwhile, the lenders are learnt to be in negotiations with several companies, including Mahindra & Mahindra, to sell off the engine, transmission and axles units at Daewoo, as the deal with General Motors only covers the assembly unit and paint shop.

On news of the buyout, share prices of DMIL soared by 19.90 per cent on the Bombay Stock Exchange (BSE) to Rs 9.52.

According to information available on BSE, the Indian public currently holds a 6.53 per cent stake in DMIL, while the promoters hold 91.63 per cent stake. The acquisition by General Motors, however, will have no bearing on the shareholding pattern of DMIL as it is only an asset buy-out.

"Today's development represents a significant milestone for the automotive industry in India," said Ms Kalpana Morparia, Deputy Managing Director, ICICI Bank. "It sends a powerful message that India is a good place to invest and a good place in which to do business."

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