THE Shangai Automotive Industry Corporation (SAIC) has received a confidential report by Ernst & Young which suggested that MG Rover’s parent company would be insolvent by March 31.

The accounting firm’s conclusion has raised fresh doubts over the Chinese giant’s plans to rescue Britain’s last remaining major carmaker.

It is understood that the continued solvency of Phoenix Venture Holdings, MG Rover’s ultimate owner, is a key condition of SAIC’s £200 million bail-out proposal.

SAIC commissioned Ernst & Young to run a due-diligence analysis of Phoenix. The report, which was handed to SAIC last month, found that Phoenix was rapidly running out of cash and would no longer be solvent as of March 31.

A source said: “The report also found that Phoenix had no ability to remain solvent for a sustainable period thereafter.”

The Times understands that two additional reports — one by KPMG, commissioned by the UK Government, and the other by Deloitte, ordered by Phoenix — reached similar conclusions to those of Ernst & Young.

“All the reports were handed over weeks ago,” a source said. “The result was that the DTI (Department of Trade and Industry) got straight on a plane.”

Senior officials from the DTI flew to China over the weekend in an effort to reassure SAIC executives with a £100 million “bridging loan” aimed at meeting the insistence of the Chinese that Phoenix remain solvent. Sources close to the DTI told The Times yesterday that the loan would last no more than about two months unless MG Rover secured a deal with SAIC.

However, it is understood that a temporary loan will not satisfy SAIC’s concerns. The Chinese group is sticking to a requirement that Phoenix demonstrate its solvency for a period of not less than two years. “SAIC wants Phoenix to demonstrate that it will be able to repay the government loan as and when it falls due,” a source said.

It is understood that SAIC fears it will be liable to repay 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 DTI were no closer to securing a deal.

The £100 million “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.

A spokesman for MG Rover said he knew nothing of the accounting firms’ reports. “But I know we are solvent,” he said.

Since MG Rover became independent five years ago it has said it needed a partner to develop new cars. Since then, talks have failed with two potential suitors.

The West Midlands, where MG Rover is based, will be a key general election battleground. Labour is worried that if Rover went bust it would be accused of supporting the four directors who bought the company for £10 in 2000 and have pocketed tens of millions in the interim.

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