Goldman investment boosts Geely’s global, Volvo hopes

HONG KONG (Reuters) — Goldman Sachs will invest $334 million in Geely Automobile Holdings, boosting the Chinese automaker’s global ambitions and a potential bid by its parent for Volvo.
Shares in Hong Kong-listed Geely spiked 26 percent on Wednesday after the company said it would issue convertible bonds and warrants to an affiliate of Goldman and will use proceeds for capital expenditure, working capital and potential acquisitions.

The addition of Goldman as a major investor could help China’s 10th-largest automaker achieve its aspirations to secure global brands and technology from struggling Western rivals, said Yi Junfeng, an analyst with Changjiang Securities.

“It’s a wise move for Geely as it can use the money to build up capacity and free up capital for its parent, which has publicly announced its interest in Volvo,” said Yi.

Earlier this month, Geely said its parent, Geely Group Holdings Co., planned to bid for Volvo. Media reports have valued the Swedish brand at close to $2 billion.

Ford Motor Co. said in December 2008 it was considering selling its loss-making Volvo unit as part of a strategic review of the business as it continues efforts to turnaround its own fortunes.

Doubling capacity

For Goldman, which could end up with 15.1 percent of Geely if it fully converts the bonds and warrants, the investment will give it exposure to China’s fast growing auto market — the world’s largest.

“We hope Goldman can help us to improve our operating efficiency, and that Goldman’s network will help in our long-term development,” said Geely Executive Director Lawrence Ang at a company shareholder meeting for an unrelated matter.

Geely will raise a total of HK$2.59 billion ($334 million) by issuing convertible bonds and warrants to GS Capital Partners VI Fund LP, an affiliate of Goldman Sachs.

Ang said money raised from the bond sale could be used to buy car-making plants from its privately held parent, which typically builds such plants and sells them to the listed company.

Geely plans to nearly double its car-making capacity to 685,000 units a year in the next few years.

Hangzhou-based Geely posted 35 percent sales growth in the first eight months of the year to 185,000 units.

Chinese expansion

Several Chinese automakers have moved to expand their global presence through deals with cash-strapped U.S. and European firms.

State-run Beijing Automotive Industry Holdings took a minority stake in Koenigsegg as part of the Swedish luxury carmaker’s purchase of GM’s Saab unit and Sichuan Tengzhong Heavy Industrial Machinery, a little-known Chinese firm, plans to take over GM’s Hummer brand.

Geely Group has also approached Magna International Inc. about a potential production partnership on General Motors Co.’s European brand Opel, a source familiar with the matter told Reuters last week.

The growing clout of Chinese automakers has attracted other investors, with U.S. billionaire Warren Buffett’s Berkshire Hathaway Inc. last year agreeing to invest $230 million for about 10 percent of battery and electric car maker BYD Co. Ltd. The investment has realised a $1.8 billion paper profit for Buffett.

Geely discussed Opel stake with Magna: source

SHANGHAI/NEW YORK (Reuters) – China’s Geely Automobile has approached Magna International about joining the Canadian auto part maker’s bid for Opel, a source familiar with the matter said, as China chases Western brands and the technology it needs to drive future growth.

General Motors agreed earlier this month to sell a 55 percent stake in car maker Opel to a group led by Magna, a deal that GM’s CEO Fritz Henderson expects to be finalized next month.

GM will keep 35 percent of Opel, with Magna and Russian state bank Sberbank each taking 27.5 percent.

Talks between the Chinese and Magna included a possible Geely stake in Opel, said the source, speaking on condition of anonymity because the discussions were private. But Magna is refraining from any such partnership for now, the source added.

It was not immediately clear if the Geely involved in the talks was Hong Kong-listed Geely Automobile Holdings or its non-traded privately-held parent company. But Lawrence Ang, executive director at Geely Automobile said the listed firm had never approached Magna on Opel.

Magna was not immediately available for comment. A spokesman for Opel said there was no new information on the matter.

GLOBAL PLAYER?

Geely has growing ambitions as a global player, and has said its parent may team up with a local government-backed investor to jointly bid for Ford Motor’s Volvo car unit, which media reports have valued at nearly $2 billion.

But analysts said Chinese automakers, already battling in their home market — the world’s largest — against foreign brands made at local joint ventures, will struggle to manage overseas auto assets given their limited international exposure.

Another Chinese automaker, Beijing Automotive had bid for a stake in Opel, but conceded defeat in July after failing to agree with GM on intellectual property issues.

“I think it will be hard for Geely to have a piece of the Opel deal in the first place,” said Li Mengtao, an analyst with Sinolink Securities. “Magna’s already got a Russian partner and involvement from a Chinese firm will make it very complicated.”

“It also makes little sense for Geely if it ends up being a minority shareholder with little access to the technologies it desperately needs.”

Sberbank has said it has no plans to remain a strategic investor in Opel, and a high-level Sberbank source told Reuters there were four possible candidates to take over its stake.

All four were Russian, and analysts have said the stake could end up with GAZ, controlled by Russian businessman Oleg Deripaska.

Chinese automakers have attempted a few overseas acquisitions in recent years with limited success.