GM Files for IPO – Analyst Blog

General Motors (MTLQQ) or GM has filed the first batch of paperwork required to hold an initial public offering (IPO) of stock within months. However, the filing did not reveal the exact timing of IPO and the number of shares to be sold under the IPO.

 

The IPO will allow the stakeholders of the company to sell their stakes. However, no dividend will be paid on the common shares. Meanwhile, the company itself will sell preferred shares, the proceeds from which will be utilized for general business purposes.

 

Post bankruptcy, GM is primarily owned by the U.S. government and Canada government, and by a trust fund providing medical benefits to United Auto Workers (UAW) retirees.

 

The U.S. government holds a 61% stake, the UAW union holds a 17.5% stake through its Retiree Medical Benefits Trust and the Canadian government holds 11.7%. The remaining shares went to the bondholders of the old company.

 

GM received $52 billion in U.S. Treasury (“UST”) loans by selling 61% ownership stake of the company and C$1.5 billion ($1.5 billion) in Export Development Canada (“EDC”) loans while going through the bankruptcy protection last year.

 

In April this year, GM repaid $8.1 billion in loans to the governments of U.S. and Canada, ahead of the scheduled maturity date of July 2015. The repaid amount constituted $6.7 billion in UST loans as well as $1.4 billion in EDC loans that it had received last year. GM intends to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to the governments of Canada and Ontario through the public stock offering.

 

Although the IPO will allow the U.S. Treasury to begin selling the 61% stake it holds, GM clearly stated in the filing that U.S. Treasury would continue to own a substantial interest in the automaker following the IPO.

 

In the filing, GM revealed its plan to list the shares on the New York Stock Exchange under the ticker “GM”, the symbol under which it traded before getting into bankruptcy. The automaker also plans to list the shares in Canada on the Toronto Stock Exchange but the ticker symbol has not yet been decided upon.

 

GM’s IPO has been long awaited. The company was desperate to shed its government ownership, which has been hurting its public image. In order to repay the government in full, GM must achieve a market capitalization of $70 billion, which is 10 times the market capitalization before the company headed into bankruptcy-court protection last year.

 

However, GM faces a trade off. Its shares may be sold for an amount that is unable to generate funds to pay off government debts. This is because the IPO market is weak and the company still faces some risks, including continuing losses in Europe and a significant under-funding of its pension obligations.