After months of deliberations, General Motors India has dropped plans to take over the facilities of ailing Daewoo Motors India (DMI).

GM's local unit was interested in taking over the Surajpur (near Delhi) DMI factory to increase production capacity for planned new models such as the Chevrolet Spark (Daewoo Matiz-based) small car.

The company negotiated with the Indian government for a long time but the administration's inability to reach an out-of-court settlement with creditors of the beleaguered plant and Arcil, an asset reconstruction fund overseeing the sale, led to the deal being called off.

The three major Daewoo India creditors are ICICI Bank, Industrial Development Bank of India (IDBI) and Exim Bank with total exposure of INR10 billion (€190 million) - in terms of the principal amount.

ICICI and Exim have both sold their exposures to Arcil. IDBI, which has itself been under a lot of pressure, has transferred its exposure to the stressed assets stabilisation fund - a new unit created to take over the bank's non-performing assets.

Daewoo India's financial burdens did not end there as the government is pressing claims of around INR15 billion, including INR6 billion of customs duty, waived earlier on machinery imports for the Daewoo factory under the export promotion credit guarantee scheme operatiing in the mid-'90s.

DMIL could not meet the export requirements and the government revoked the duty waiver.

After Daewoo Motors India went bankrupt, creditors and the agency involved in the deal were willing to clear the debt due to the government through an out-of-court settlement. It reportedly was agreed that the government would recover part of the dues by auctioning the plant and machinery. However, the government has not yet signed a memorandum of understanding on the proposed out-of-court settlement.

In view of the delay caused by the government, GM India has now withdrawn from the race. The company would have needed to invest a significant amount of money refurbishing the plant as the machinery has not been maintained properly.

GM is likely now to set up an independent green field project to make small cars here.

Arcil, meanwhile, is looking for other potential suitors - Mahindra & Mahindra is one possibility.

Deepesh Rathore