MG Rover's parent company could soon be insolvent, according to confidential reports received by The Shanghai Automotive Industry Corporation, it was claimed today.
According to reports, SAIC commissioned accountants Ernst & Young to run a duediligence analysis of Phoenix Venture Holdings, the ultimate owner of the car firm.
It is understood that the continued solvency of Phoenix is a key condition of SAIC's #200 million proposal.
It has been claimed the report, which was given to SAIC last week, suggested Phoenix was running out of cash and would no longer be solvent as of March 31.
It has also been suggested that two other reports, one by KPMG commissioned by the Government, and another by Deloitte on behalf of Phoenix, reached similar conclusions.
However, a spokesman for MG Rover said he knew nothing about the accounting firms' reports but said he knew Phoenix was solvent.
The accounting firms' conclusions have renewed concerns over the Chinese company's plans.
Top officials have been sent to Shanghai by Trade Secretary Patricia Hewitt to speed up negotiations and reassure SAIC executives with a #100 million bridging loan aimed at meeting the requirement of the Chinese that Phoenix remain solvent.
It is believed the loan would last no more than two months, unless MG Rover secured a deal with SAIC.
However, it is understood that a temporary loan will not satisfy SAIC. The Chinese company wants to stick to a requirement that Phoenix demonstrates solvency for more than two years before it goes ahead with the deal.
It is understood that SAIC fears it will be liable to pay back the #100 million loan as well as funding a #400 million pension black hole if Phoenix collapses.
Last night, after two days of negotiations, SAIC and the Department for Trade and Industry were no closer to securing a deal.
The bridging loan comes on top of other Government assistance already provided to MG Rover, including the deferral of VAT and national insurance payments worth about #50 million.