Geely's Volvo bid may be aided by Goldman stake

ERJ staff report (AN)

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 Car Corp.

Shares in Hong Kong-listed Geely spiked 26 percent today 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 money-losing 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 $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 carmaking plants from its privately held parent, which typically builds such plants and sells them to the listed company.

Geely plans to nearly double its carmaking 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 Group AB, which is trying to finalize a deal to buy Saab from General Motors Co., 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 GM'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 US billionaire Warren Buffett's Berkshire Hathaway Inc. last year agreeing to invest $230 million for about 10 percent of battery and electric carmaker BYD Co. Ltd. The investment has realised a $1.8 billion paper profit for Buffett.

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Geely's Volvo bid may be aided by Goldman stake from Automotive News (a Crain publication)