GM steers toward world's largest market debut (News Feature)

By Daniel Schnettler Nov 18, 2010, 3:45 GMT

New York/Detroit, Michigan - General Motors appeared headed for the largest initial public stock offering in world history as its stock starts trading Thursday amidst huge clamour for its new shares - even at maximum price.

Little more than a year after declaring bankruptcy, the world's second largest car maker has re-emerged with two successive quarters in the black and was poised to start repaying the US and Canadian governments that bailed it out.

In the end, if underwriters make full use of added shares being offered, the take could bring in 23.1 billion dollars. Such a feat would outpace the 22.1 billion dollar record set by the Agricultural Bank of China earlier this year.

Because of investor demand for the new GM shares, the company announced Wednesday after markets closed that underwriters would offer common stock at 33 dollars a share - the top of a range that the Detroit-based company kept notching up in recent weeks from a low of 26 dollars.

The offering includes 478 million common shares - currently owned by the US and Canadian governments and the United Auto Workers' union retiree medical fund - and 87 million shares of preferred stock.

The preferred stock will raise money for GM's corporate investment in designing and making new cars, for example.

GM in recent weeks had projected a share price of only 26 to 29 dollars for common stock, and indicated it would sell only 365 million common shares and 60 million shares of preferred stock.

The high prices and expanded shares signalled the huge demand for new GM shares. The Bloomberg financial news service reported that there were more than seven bidders for every share.

The proceeds will make a considerable dent in the 50 billion dollars that GM owes US taxpayers: the US government owns 61 per cent of GM after keeping the company afloat during last year's bankruptcy reorganization. The Canadian government and its Ontario province own 11.7 per cent, while the autoworkers union owns 17.5 per cent.

'We are especially appreciative of those who stood by us through the toughest times, and we are dedicated to creating value for all of our stakeholders,' GM vice chairman Chris Liddell, who is also chief financial officer, said in a statement on the GM website.

Trade in GM stocks will begin Thursday morning on the New York Stock Exchange and the Toronto Stock Exchange.

Analysts expect that the newly issued shares will drastically increase in value. The reason: GM despite all its problems and 80 billion dollars of losses before bankruptcy is still the world's largest car maker after Toyota.

The company has been able to liberate itself from past burdens by negotiating deals with the unions to reduce personnel costs and with banks to reduce debt. Car sales have been climbing since reaching a nadir in 2009.

So far this year, GM has reported profits of 4 billion dollars and is expected to end the year in the black for the first time since 2004. GM's two problem children - Vauxhall in Britain and Opel in Germany - are expected to return to profit by 2012 through rigorous cost-cutting.

Also fuelling interest in the GM IPO is the fact that international investors are sitting on mountains of money since the financial crisis that started in 2007.

With the GM IPO, small investors are unlikely to even have a chance. Most shares are likely to go to large investors like Asian state funds and those in the Middle East which have an obsession with the automobile industry and are heavily vested in Daimler and VW, for example.

The long-time Chinese partner of GM, SAIC, is also expected to secure a chunk of shares. China is America's second most important car market, while Europe has lost market share there.

Of the three large GM owners, the US government is the most anxious to sell its shares and upped the number it would offer in recent days by more than one-third. It was however unable to persuade Canada and Ontario to increase their offerings, as Canada is betting that prices for its remaining shares will rise after Thursday.

Canadian Industry Minister Tony Clement said that Canada wanted to 'chunk it out over time to try and maximize taxpayer protection,' Bloomberg financial news service reported.

A successful debut on Thursday could reduce US ownership of GM from 61 per cent to 26 per cent.

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