Chinese automaker SAIC, which owns the MG Motor brand, had used the ECB route prior to its joint venture (JV) with Sajjan Jindal led JSW Group earlier this year.
‘Formed JV to Raise Capital’
A source aware of the development said amid scrutiny on investments from China, MG Motor India initially raised ECB to meet working capital needs and had to form the JV with JSW Group to raise capital through the equity investment route.As per the June 2020 Press Note 3 notification, a company based in a country sharing land border with India such as China can make investments only after obtaining government clearance unlike the automatic route previously. Any such proposal will need to be approved by multiple ministries. This followed worsening of bilateral ties between the two neighbours after a deadly border clash between the two armies in early 2020.
The Indian government’s move severely dented Chinese investments even though some proposals—those by beneficiaries of production linked incentive (PLI) schemes and JVs with Indian partners—were cleared in recent months. “Equity funding from Chinese parents has become a challenge and hence we decided to fund some immediate expansion through a mix of borrowing and reserves,” said a director of the Indian subsidiary of a leading Chinese electronics maker.Last year, Haier India had applied to the Department for Promotion of Industry and Internal Trade for approval to infuse Rs 1,000 crore as equity from its parent. The proposal is yet to secure government approval.
Haier wanted the fresh capital for backward integration but subsequently decided to make the investment on its own due to the delay, an industry executive said. This includes Rs 400 crore for injection moulding of air conditioners and washing machines at its Greater Noida plant. It will invest another Rs 300-400 crore for a printed circuit board plant through a mix of internal accruals and ECBs, the executive said.
Haier India is also in the process of selling a big stake to localise its operations. This follows the Indian government nudging Chinese firms to partner with local entities for business expansions.
Similarly, Chinese air-conditioner major Midea is expanding capacity at its AC compressor plant near Pune, run by its GMCC division, by using a portion of the profits generated by its Indian operations and local borrowings, another executive said. GMCC is one of the world’s largest AC compressor manufacturers.
Midea is in the process of doubling compressor manufacturing capacity to 3 million units a year by mid-2025. It plans to further double capacity to 6 million units per year by 2026. This will entail an investment of more than `300 crore, the executive said.
Midea and Haier did not respond to ET’s queries.
“The investment received from our JV partners is sufficient to fund the development of our business and plant expansion… Consequently, we don’t have plans to consider the ECB route for further investment,” said the JSW MG Motor India spokesperson.
