General Motors Co took a big step toward repaying a controversial taxpayer-funded bailout by declaring plans for a landmark stock offering that represents a critical test for the Obama administration.
The carmaker said it planned to list the shares on the New York Stock Exchange and the Toronto Stock Exchange in an initial public offering that comes amid a still-weak global market for cars that is vulnerable to a further downturn.
The Obama administration wants to be able to cast its $50 billion GM bailout as a financial success in the face of public scepticism and Republican political opposition but some analysts are still wary of the offering.
GM’s IPO could be the biggest since Visa Inc’s $19,7 billion March 2008 offering, and could raise up to $20 billion, though analysts cautioned that its size depends on still-untested investor demand for a restructured automaker with only two consecutive quarters of profits.
GM’s initial filing with US securities regulators did not say how many shares would be sold or give an expected price range for the IPO.
“We’re looking at a second half that is potentially weaker than the first half,” said Dennis Virag, president of Automotive Consulting Group. “That could certainly hurt the sale of the shares.”
“I don’t think this is a good time to be going public,” Virag said. “It’s more political than practical.”
Trading in GM shares is expected to start between late October and the US Thanksgiving holiday on November 25, according to people involved in the process.
A stock offering in late October would mean trading would start just before the November congressional elections.
Government officials and GM executives have repeatedly denied any link with the elections.
The 102-year-old onetime blue chip is expected to return to the NYSE under the “GM” ticker symbol it had before the government-funded bankruptcy.
Adding a stock listing in Toronto underscores the role the governments of Canada and Ontario played as junior partners to the US Treasury in keeping GM from liquidation.
The long-running confidential preparations for the IPO were dubbed “Project Dawn” by the group of bankers, Treasury officials and GM executives led by Chief Financial Officer Chris Liddell.
GM chief executive Ed Whitacre, who steps down at the start of September, has said the automaker needs to distance itself from government ownership and the label “Government Motors” to build momentum in its turnaround.
“I just think that the risk of failure with the IPO is bigger than the risk of being known as Government Motors,” said Brad Coulter, a restructuring specialist at O’Keefe & Associates.
Part of IPO to raise capital
The US Treasury said it would not include any of its preferred shares in the IPO and did not indicate how long it would take to shed its stake.
The Treasury plans to sell about 20% of the 304 million common GM shares it holds, reducing its stake in the top US automaker to under 50%, sources have said.
GM does not plan to sell new common stock in the IPO but plans to issue preferred stock that would generate proceeds for the automaker.
Such an offering is a less-risky form of equity that could attract dividend and growth fund investors.
Although bankruptcy eliminated about $40 billion in unsecured debt and other obligations for GM, the automaker still needs funds to restructure its money-losing Opel unit in Europe and address a pension shortfall of about $26 billion.
GM has posted two consecutive quarters of profit after slashing costs and debt in bankruptcy and dropping the Pontiac, Saab, Hummer and Saturn brands.
The US government currently owns almost 61% of GM after converting $43 billion of the $50 billion in funding to the automaker into equity.
Taxpayers made whole?
The total value of the GM stock offering would be critical. For US taxpayers to recover the $43 billion invested in GM, the market value of the automaker would have to be near $70 billion.
After the offering, the US Treasury and Canada will no longer have the right to designate board nominees.