Mahindra (China) Tractors Company Ltd.

MIGA has issued a guarantee of $7.2 million to Mahindra Overseas Investment Company of Mauritius, covering its equity investment in Mahindra (China) Tractors Company Ltd. The guarantee covers Mahindra’s investment in a tractor manufacturing and export project. Mahindra is investing $8 million out of an estimated total investment of $10 million in the project. The coverage is for a period of up to 15 years against the risk of expropriation.

Mahindra Overseas Investment Company, Mauritius—a wholly-owned subsidiary of Mahindra & Mahindra of India—and Jiangling Motor Company Group of China entered into a joint-venture agreement in December 2004 to create the project enterprise.

The project involves the creation of the joint-venture company as well as the acquisition of the tractor manufacturing assets of a state-owned company in Nanchang, Jiangxi province, to manufacture small tractors and parts for domestic and export markets. The project will also import larger tractors from India and assemble them for sale in the Chinese market. The plant’s initial capacity is for 6,000 tractor units per year. Production is expected to reach 11,000 in 2008, and 18,000 at full capacity in year 2012.

Over the last few years, the government of China has implemented agricultural policies that have created incentives for the mechanization of farms and boosted the demand for more sophisticated products like belt tractors and geared tractors in the pursuit of productivity gains and development of contract farming. The domestic Chinese market for tractors is estimated to be growing at the rate of six percent annually. This project will cater to the domestic market with modern, fuel-efficient tractors of the 18 to 33 and 60 horse-power variety.

The project meets several of MIGA’s strategic priorities: it is a “south-south” investment (from one developing country into another), and supports the diversification of the agency’s portfolio in China. It also supports the Chinese government’s ongoing efforts to restructure state-owned enterprises. The project is therefore consonant with the World Bank Group’s country participation strategy, which aims to support China’s growing integration with the global economy.