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* Deal has yet to gain government approval -sources
* Delays to force GM to pay exit cost out of pocket -source
By Aditi Shah and Ben Klayman
NEW DELHI/DETROIT, Sept 17 (Reuters) - Delays to GeneralMotors'
Gaining Indian government approval for China-related dealsis now expected to take quite some time and although the saleshould still happen at some point, GM has not changed its planto begin winding down the plant's operations next month, theysaid.
"By next year, it will either be a closed GM site or it willbe an operating site with Great Wall," said one source.
GM had planned to use the expected sale proceeds of $250million-$300 million to pay off liabilities incurred with itsexit from manufacturing in India in what a second source saidwould have been a "no gain-no loss" situation.
Although money will come through once the deal is done, it will now have to pay out of pocket for severance pay, some ofwhich would never have occurred had the deal proceeded smoothly,as well as other costs - which could amount to a couple hundredmillion dollars, according to the second source.
Sources also said severance pay costs could be much higherthan usual due to lack of clarity about the deal's prospects andworkers' demands for greater relief given the low chances offinding new jobs amid the coronavirus pandemic.
The sources were not authorised to discuss the deal andspoke on condition of anonymity.
GM stopped selling in the world's second most populousnation at the end of 2017 after years of low sales but thefactory continues to build vehicles for export. Located in thewestern state of Maharashtra, the plant employs about 4,000.
If workers don't agree to the severance offered, GM willneed local government clearance to lay off staff. That is oftena long, bureaucratic process which could help stoke workerprotests or political opposition, the sources said.
GM said in a statement it continues to work toward endingproduction at the plant and closing the deal with Great Wall.Great Wall did not respond to a request for comment.
ENSNARED IN TENSIONS
The sale was announced in January and had been slated toclose in the second half of 2020. Just when it might proceedremains highly uncertain.
In April, India introduced stricter rules for investmentsfrom China and other neighbouring countries aimed at preventingpandemic-hit Indian companies being taken over at bargainprices. A number of central government ministries are nowrequired to sign off on the deal, instead of just Maharashtrastate.
Then in June, a deadly border clash between the two nationsresulted in a further clampdown on Chinese businesses andMaharashtra put three investment proposals from Chinesecompanies, including Great Wall's, on hold.
Further complicating matters, GM and Great Wall did not seekcentral government approval until late July, the sources said.
Investment proposals from Chinese companies are unlikely tobe approved until tension at the border dissipates, two centralgovernment officials told Reuters.
India's finance and commerce ministries did not respond toReuters requests for comment.
Great Wall "now feels it is impossible to finish thetransaction this year," a company source said.
The hold-up has made the Chinese automaker nervous as it hadplanned to launch its first India-made car in the first half of2021, said a separate person aware of the plans.
The company, which plans to invest $1 billion in India, hasstarted hiring staff, including executives to run the plant, andis in talks with auto parts suppliers, the person said.
But even after the central government greenlights theproject, Great Wall will still need more than three months tofinalise investment terms with Maharashtra state and to revampthe plant, the person added.
(Reporting by Aditi Shah in New Delhi and Ben Klayman inDetroit; Additional reporting by Yilei Sun in Beijing, AftabAhmed in New Delhi and Rajendra Jadhav in Mumbai; Editing byEdwina Gibbs) ((aditi.shah@tr.com; +91-11-4954 8023, +91-11-3015 8023;Reuters Messaging: aditi.shah.thomsonreuters.com@reuters.net;twitter: @aditishahsays))
