The U.S. Treasury is hoping for the greatest bang for the buck from General Motors’ upcoming initial public offering as a return to taxpayers for keeping the auto maker afloat to the tune of about $50 billion following last year’s bankruptcy.
Fair enough. But some media reports are raising the alarm that potential investors could come from foreign soil. This hardly comes as a surprise considering the old GM had many foreign shareholders. No matter, these are different times.
One early suitor is Shanghai Automotive Industry Corp., GM’s longstanding joint-venture partner in China, whose chairman last month was quoted by the Financial Times as saying his company was considering an investment, albeit small, in GM. Against today’s bear market, his remarks did not go unnoticed.
Yes, SAIC is owned in part by the Chinese government, but before we get too excited, GM’s 13-year partnership with the company already has paid it back in spades.
Given the current growth prospects of China’s auto market and based on estimated sales of 17 million vehicles this year, analysts say it will not be surprising if total market demand by 2015, including exports, reaches 30 million units based on an average growth rate of 15%. Considering deliveries grew 56% in August that qualifies as an understatement.
Indeed, China now is GM’s largest car market, where Shanghai General Motors builds a range of cars, from the Chinese-designed Buick LaCrosse and Regal to the Chevy Cruze and tiny Sail. The two partners share a tech center in Shanghai, a research center in Beijing and have a JV with Wuling Auto, which produces mini-commercial trucks and vans.
Additionally, SAIC holds a stake in South Korea’s GM Daewoo, GM’s design and engineering center for global small cars. Most recently, SAIC and GM formed a new company, registered on the Hong Kong stock exchange, with the goal of repeating their China success in India by building small cars, commercial vehicles and engines for the domestic and export markets.
With the Chinese government considering ordering foreign companies to share their intellectual property and concede to their Chinese partners a 51% controlling interest in their JVs, it’s a good thing for GM to be partnered with SAIC.
If state-owned SAIC invests in GM, among the most-successful foreign companies in China, the Chinese government will have a vested interest in protecting the U.S. auto maker’s future, not exploiting it.
Still, taking the Treasury’s IPO investors goal to a fantasy conclusion, how ironic if America’s largest auto maker one day were to be owned by China’s largest car company.
You could argue turnabout is fair play, as the Detroit Big Three in better times gobbled up foreign brands and later spit them out, such as Isuzu, Suzuki, Saab, Volvo, Jaguar-Land Rover and Mitsubishi.
The Treasury late last week sought to calm IPO jitters here, saying it expects investors around the world to be invited to take a stake in GM. But with U.S. nationalism running high these days, it wouldn’t be surprising for such a move to provoke a political backlash in Congress.
Yet, the scenario is quite plausible, as GM and its advisors meet with sovereign wealth funds over the coming weeks to measure their interest in becoming cornerstone investors. An SWF is a state-owned investment fund, often held by a central bank, and composed of financial assets such as stocks, bonds, real estate and precious metals, that invests globally.
The world’s wealthiest SWF is the Abu Dhabi Investment Authority, worth $627 billion, according to the Sovereign Wealth Fund Institute. Fifth on the list is the China Investment Corp., responsible for managing part of the China’s foreign-exchange reserves and worth an estimated $332 billion, with about $200 billion of U.S. assets under management.
Not to worry, the new GM reportedly has many provisions in place to insure against an unwanted takeover from non-U.S. investors, including legal deterrents against SWFs.
Ironically, the real issue is not who wants in, but whether anyone is in queue at all.