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Abu Dhabi, UAEWednesday 12 December 2018

Volvo pumps brakes on IPO amid trade dispute and lower industry stocks

Swedish car maker plans for Stockholm listing are delayed indefinitely, but Britain's Aston Martin is moving ahead with IPO

Workers assemble a car at the Volvo Cars manufacturing plant in Daqing, Heilongjiang province, China. Reuters
Workers assemble a car at the Volvo Cars manufacturing plant in Daqing, Heilongjiang province, China. Reuters

Volvo and its Chinese owner Geely have postponed plans to float shares in the Swedish car maker, blaming trade tensions and a downturn in sector stocks.

But while Volvo's plans for a Stockholm listing were delayed indefinitely, Britain's Aston Martin affirmed to push ahead with its own initial public offering.

"We've come to the conclusion that the timing is not optimal for an IPO right now," Volvo chief executive Hakan Samuelsson said.

Volvo and Geely had been discussing an IPO to value the car maker at between $16 billion (Dh58.8bn) to $30bn. The company said a listing was still possible in the future.

But Mr Samuelsson said IPO prospects had dimmed with the business cycle, amid a broad-based decline in automotive shares that has dragged the Stoxx 600 Autos & Parts index 15 per cent lower so far this year.

Even before the recent sell-off, however, some observers doubted the $30bn upper end of Volvo's target valuation.

"We had expressed our reservations concerning lofty valuation ambitions before," Evercore ISI analyst Arndt Ellinghorst said on Monday. "Trade wars are just one red flag."

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Washington's escalating trade dispute with Beijing and tensions with Europe have rattled investors, adding volatility to market outlooks.

Volvo is less exposed than its German premium rivals to US-China tariffs, however, and has said it will juggle production of its XC60 SUV to reduce their affect.

The manufacturer delivered 61,480 cars in China in the first half, a fraction of BMW's or Audi's sales.

Geely, which paid Ford Motor $1.8bn for Volvo in 2010, also has stakes in Mercedes-Benz parent Daimler, truck maker AB Volvo and Lotus.

The Chinese company and its boss Li Shufu had concluded that Volvo should make deeper inroads into the Chinese market before listing.

And Volvo, which is developing Polestar as an electrified performance brand and owns a stake in Geely stablemate Lynk&Co, has "other alternatives" to raise finance, Mr Samuelsson said.

The IPO postponement reflects bigger concerns about "price development after a potential IPO" rather than about the initial valuation, the chief executive added, citing sensitivities over the prevalence of public pension funds among Swedish investors.

"What made me nervous especially was leaving headroom for investors" amid growing market uncertainties, he said.

Swedish telecoms operator Telia drew public wrath after its shares sank from their 2000 debut. For a domestic car brand, such a setback could dent both image and sales.

Mr Samuelsson also said that Aston Martin, as a pure luxury play, was "more like Ferrari" - whose widely envied listing came close to late boss Sergio Marchionne's €10bn (Dh42) target valuation. Like Volvo, Aston Martin was once owned by Ford.

"I wish them luck with their IPO," Mr Samuelsson said.