GM's Chinese partner could seek a stake in the U.S. maker when GM launches its IPO later this year.
Will politics enter into play as Chinese auto giant SAIC weighs a potential hefty investment in General Motors stock?
Sources confirm the U.S. maker’s Asian partner is considering a large stock purchase when GM stages its long-awaited IPO, later this year. That move is expected to help begin the draw-down of the government’s 60.1% stake in General Motors, which the Treasury took in return for its $50 billion bailout of the ailing automaker.
Itself partially owned by the Chinese government, Shanghai Automotive Industry Consortium is not only one of the largest carmakers in that booming Asian nation but also one of the leading GM partners. Together they produce Buicks, Wuling trucks and a new line of mini-cars aimed at attracting the next generation of Chinese car buyers. In 2009, the two sold more than 1 million vehicles in China, an all-time record.
GM is expected to stage its Initial Public Offering shortly after the upcoming mid-term Congressional elections. While former CEO Ed Whitacre had suggested the entire taxpayer stake in the company would be sold off at once, his successor, Dan Akerson, indicated last week that it will more likely take several years for the U.S. Treasury to recoup its entire investment.
Beyond that, however, GM officials have been reluctant to discuss specifics of the IPO, citing federal restrictions.
How much SAIC is looking to purchase is unclear. A key assignment for Akerson has been preparing for the IPO and lining up investors. A former director of the powerful equity firm, The Carlyle Group, he is well-placed to tap into the potential market for the “new” GM’s shares.
But a key concern raised by company insiders is that the White House may be reluctant to hand over a stake in the nation’s largest carmaker to the Chinese – which could raise potential criticism about why taxpayers had to bail GM out in the first place – even though the government is anxious to recoup its investment as quickly as possible.
Complicating matters is the fact that China places strict limits on foreign investments into its auto industry, requiring makers like GM to partner with local manufacturers — such as SAIC.
The Treasury, in a statement last week, said that it would “focus on North American investors,” though it left open the possibility of tapping into “multiple geographies” with the IPO and subsequent stock sales.
Observers say it will be a challenge raising the cash the government needs to get back for its investment – it would require more than $113 a share unless it stock were to be split ahead of time.
The bigger challenge will be to convince investors that the company truly is a good risk. During a meeting with reporters, last week, Akerson insisted that with the steps taken during its 2009 bankruptcy, GM is now the “envy” of its competition. The maker’s strong profits for the first half of this year have also won it new respect. But even GM’s new CEO paused to admit “two strong quarters don’t a turnaround make.”