The US government took a major step towards reclaiming nearly US$50 billion (Dh183.63bn) of taxpayer bailout money when General Motors (GM) launched a public offering of the company's stock yesterday.
Early trading confirmed that the share issue by the 102-year-old car maker, which nearly collapsed in 2008, would rank as one of the largest in financial history. Originally priced at $33, the shares rose as high as $35.94 in early trading on the New York Stock Exchange.
President Barack Obama said this week that "General Motors' initial public offering (IPO) marks a major milestone in the turnaround of not just an iconic company but the entire American auto industry".
"Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer," he said.
GM will raise an estimated $23.1bn in the offering if an option to sell more shares is exercised, which would be higher than the $22.1bn raised by the Agricultural Bank of China in July. It will also allow the US Treasury to reduce its stake from 61 per cent to about 28 per cent. The shares need to reach $49 for the government to break even.
The government intervention has become a topic of political debate, drawing criticism from Republicans who coined the moniker "Government Motors" for GM and accused the president of making "socialist" choices.
With a restructuring overseen by the New York hedge fund manager Steven Rattner, better known over the past 18 months as the "car czar", GM shed some 50,000 staff, got rid of half of its brands and shut down hundreds of dealerships.
Now it has emerged as an unlikely favourite for investors, who are impressed by the leaner company that has returned to profitability. GM reported income of nearly $2bn in the third quarter, putting it ahead of Ford and Chrysler, its two main competitors in its domestic market. It is expected to report its first full-year profit since 2004, bolstered by new cars such as the Buick LaCrosse and the hybrid Chevrolet Volt. Even so, its European operations reported a $1.3bn loss during the first nine months of the year, a fact that will weigh on the company in the near future.
Mutual funds are expected to end up holding the majority of the shares in the IPO, with just 10 per cent offered to international investors. SAIC Motor Corporation, GM's main manufacturing partner in China, bought a less than 1 per cent stake for $500 million, according to the Financial Times. Sovereign wealth funds from the Middle East and Asia are also expected to buy into the offering.
GM was once one of the most heavily traded shares in the US equities markets. Its collapse in 2008 hit the market hard and wiped out savings of GM pensioners and workers. The same retirees have sought a portion of the IPO to regain some of their losses.
* with Reuters