An investment arm of Goldman Sachs Group Inc. (GS) is poised to invest about $250 million in Geely Automotive – China’s largest privately-owned carmaker – by purchasing the company’s convertible bonds and warrants.
Geely Automotive is the Hong Kong-listed arm of Chinese automaker Geely Holding. Goldman Sachs Capital Partners will buy convertible bonds and warrants issued by Geely’s Hong Kong-listed subsidiary. The deal is almost complete, but some technical details of the investment are still pending. Confirmation of the deal could be announced as early as this week.
Geely plans to use the proceeds from the Goldman investment to boost its production capacity, which could free up capital for its parent to bid for Volvo. Geely’s parent company has made global headlines in recent weeks after contemplating a bid for Volvo, the Swedish car brand owned by Ford Motor Co. (F). A successful deal would boost Geely’s profile and give it access to Volvo technologies, which it needs to upgrade its cars.
Geely’s parent had also approached Canadian auto parts maker Magna International, Inc. (MGA) about a potential production partnership on Opel.
Earlier this month, General Motorsagreed to sell a 55% stake in carmaker Opel to a group led by Magna. However, it is understood that the $250 million investment will be earmarked to treble annual production at Geely’s flagship car plant in Hunan province to 150,000 units.
The investment in Geely will result in the private equity fund owning a minority stake of about 15% of the Hong Kong-listed company, with the precise level determined when the warrants are exercised. Trading in shares of Geely was suspended last week in Hong Kong’s Hang Seng exchange as investors awaited an official statement about the investment.
Chinese automakers are rapidly growing in size and ambition, and the investment underscores rising international belief that, given the right financial support and expertise, they could emerge as global champions. Chinese demand for cars has been robust and on the rise boosted by Beijing’s policy initiatives, including sales tax cuts on small cars and subsidies for rural buyers.
Hyundai Motor Co. Ltd., Toyota Motor Corp. (TM) Honda Motor Co. Ltd. (HMC) and Volkswagen have all witnessed strong growth from their joint ventures in China. In fact, China’s Association of Automobile Manufacturers estimated that domestic auto sales could exceed 10 million units in the first 10 months of this year.
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