British carmaker MG Rover has announced plans to take over a car factory in Poland as part of its effort to assemble and sell more cars in Eastern Europe.

Polish car buyers lost confidence in the brand

"We think production could begin within 6 to 12 months," said MG Rover's public relations director, Steve McKee.

Talks are ongoing about production of MG Rover models as well as of the Daewoo models currently being manufactured, Mr McKee said.

MG Rover could eventually make five car models in Warsaw, Poland's deputy economy minister Maciej Lesny said.

Important markets

The factory is up for grabs because its main owner, Daewoo Motor of South Korea, has filed for bankruptcy.

MG Rover eyes both ownership and licensing agreements

Daewoo owns 90% of the factory while the Polish government owns 10%.

The Polish government is keen for MG Rover to step in as a strategic investor in the Daewoo-FSO plant.

And the UK car maker is equally keen to comply, considering injecting "substantial investment" into the project, Mr McKee noted.

"Poland and the eastern markets are important for MG Rover," he said.

"It is a region where we are not strongly established and we now have a chance to enter the Polish market."

Free of debts

Daewoo-FSO's most valuable assets are due to be transferred into a "New Small Company".

Its creditors, including the government, would receive shares in the new company in return for writing off Daewoo-FSO's debts.

"The treasury will exchange its debt for equity [in the new firm] but we will not be a shareholder forever," said Mr Lesny.

"We do not want to renationalise the automotive sector. We want to eventually sell our stake."

MG Rover would either buy a stake in the company, or it would operate it on a licence, Mr McKee said.

Daewoo-FSO owes about $300m to Polish and Korean banks, $700m to Daewoo Motor, and $60m in unpaid taxes to the Polish government.

Daewoo's new parent

Daewoo Motor was recently sold to the US car giant General Motors, but the Polish factory was not part of the deal.

The Polish factory had been Daewoo's largest foreign investment.

The company invested $1.4bn in the country during the mid-1990s.

It ended in fiasco after the Daewoo brand lost its shine when the parent company went belly up along with a fall in new car sales in Poland.

Consequently, Daewoo-FSO cut its workforce in half to 3,100 employees.