China Automaker Considers Investment in GM IPO

The U.S. has not been receptive to Chinese buyout attempts in the past


As General Motors Co. prepares for an IPO, the company’s majority owner, the US 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 in the IPO 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 US automaker. GM is not commenting on the possibility, and the US 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 firms to invest in US firms has a rocky history. Since 2005, when Chinese oil company Cnooc Ltd. (NYSE: CEO) made an offer, later withdrawn, to buy Unocal, the US has not been very receptive to Chinese buyout offers. The attempted buyout of network equipment maker 3Com by a Chinese firm met essentially the same fate though the details differ somewhat.

The US 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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