Chinese automaker eyes GM IPO

The US has not been receptive to previous buyout attempts.

By InvestorPlace Sep 21, 2010 11:08AM

By Paul Ausick


As General Motors prepares for an IPO, the company's majority owner, the U.S. government, is trying to figure out the best way to recover the $43 billion still outstanding from its loan to GM. The roster of potential investors includes everyone and everything, from individual investors to pension funds.


Well, maybe not quite everyone. GM's partner in its Chinese joint ventures, SAIC Motor Corp., may be interested in buying a stake in the U.S. automaker. GM is not commenting on the possibility, and the U.S. government's official statement on access to investors is "We expect that potential investors will be sought across multiple geographies with a focus on North American investors, in line with what is typical in similar transactions."

The government’s statement also has this to say about its involvement in the sale: "Consistent with our articulated principles and prior practice, (the US government) will satisfy itself that the above principles are being adhered to but will not involve itself in decisions regarding allocation of shares to specific buyers."


Allowing Chinese companies to invest in U.S. companies has a rocky history. Since 2005, when Chinese oil company Cnooc Ltd. (NYSE: CEO) made an offer, later withdrawn, to buy Unocal, the U.S. has not been very receptive to Chinese buyout offers. The attempted buyout of network equipment maker 3Com by a Chinese company met essentially the same fate though the details differ somewhat.


The U.S. is not alone. The Australian government killed a deal between Rio Tinto plc (NYSE: RTP) and China’s aluminum giant Chinalco. Governments are wary of allowing foreign ownership of what they consider to be strategic assets, the definition of which can vary from case to case.


Are automobiles strategic in the same way that oil and technology are? Why was the deal for 3Com killed and IBM Corp. (NYSE: IBM) allowed to sell its PC business to China's Lenovo?


The Chinese government has circulated a draft of new regulations limiting foreign investment in electric vehicle technology to a minority interest. The Chinese have decided that new technologies related to automobiles are strategic, and that Chinese-owned companies will control their development in China.

The Chinese government's official newspaper reports that SAIC's chairman has said that "so long as it is a win-win situation, we will join" the IPO. Then the paper goes on to say that SAIC's "participation in the offering will show the company's confidence in GM, thereby helping the U.S. automaker attract the attention of more investors to ensure the success of the IPO. SAIC may buy shares in return for GM’s previous kindness."


Maybe something got lost in the translation.

As of this writing, Paul Ausick did not own a position in any of the stocks named here.


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