General Motors Co. is moving into a new and more politically charged phase of preparations for its landmark initial public offering.
China's top automaker, SAIC Motor Corp, has reached out to GM to explore the prospect of taking a stake in the U.S. automaker when it goes public this fall, four people with knowledge of the matter said.
At the same time, GM and its advisers are making appointments to meet with sovereign wealth funds over the next few weeks to sound out their interest in committing to buy and hold major stakes as so-called "cornerstone investors," one source said.
U.S. officials have taken a cautious approach to foreign investor participation in the GM IPO because of the possibility of any such investment -- perhaps by a state-funded Chinese automaker in particular -- to trigger a political backlash.
As of earlier this month, the U.S. Treasury had not yet decided how to handle the question of potential stakes in GM by sovereign wealth funds, a move that would help create demand among other investors, one source said.
A spokesman for the U.S. Treasury declined to comment on preparations for the IPO. But Treasury late on Friday night posted public guidance online that said IPO investors will be sought "across multiple geographies with a focus on North American investors" and that the investor pool would be large and diverse, including U.S. retail buyers.
The U.S. Treasury said that it had also given guidance to GM and the underwriters on principles for the IPO but would not be involved in discussions about how shares are allocated.
A GM spokesman could not be reached for comment but GM has repeatedly declined to comment on the IPO, citing securities regulations.
Cornerstone investors typically commit to a relatively large stake to demonstrate confidence in an IPO. In the GM deal, cornerstone investors would likely be approached for stakes of several hundred million dollars to a billion dollars each, one person with direct knowledge of the preparations said.
The size of the GM IPO has yet to be determined but estimates range from $10 billion to $20 billion depending on how aggressively the Treasury decides to sell its stake and the strength of the markets.
The U.S. government pumped $49.5 billion of taxpayer money into GM in a still-controversial bailout that kept the automaker from liquidation but earned it the nickname "Government Motors" from critics.
Ahead of November congressional elections, the Obama administration has been working to convince voters that the 2009 rescue packages for GM and Chrysler spared the auto industry an even more wrenching downturn.
The U.S. Treasury is expected to take a loss on the first offering of GM stock although subsequent offerings of the government's holdings may be profitable, sources have said.
ROUGH ROAD AHEAD?
The contact between state-backed SAIC -- which has a 13-year relationship with GM -- and GM has been informal and the expression of interest by the Chinese automaker could hit a quick dead end if the U.S. government objects to the move, several of the sources said.
In its informal contact with GM, SAIC has expressed an interest in acquiring a "single digit" ownership stake -- less than 10 percent -- in GM, one person with knowledge of the discussion said.
Because the SAIC contact with GM remains private and preparations for GM's IPO are covered by strict U.S. securities regulations regarding disclosure, none of those involved in the discussions could be named.
SAIC Chairman Hu Maoyuan has said that the Chinese automaker had not made any decision about a GM investment and would seek a "win-win" arrangement, a spokesman for the automaker said.
In addition to the potential for pushback from the U.S. government, SAIC has been tentative in its approach to the GM deal because its first major overseas investment turned into a costly distraction, one source said.
SAIC bought South Korean automaker Ssangyong in 2004 for $552 million but failed to reverse a slide that sent it into bankruptcy in early 2009.
In a deal struck during its slide toward bankruptcy, GM sold a 1 percent ownership stake in Shanghai GM to joint venture partner SAIC in exchange for the help of the Chinese automaker in securing a $400 million line of credit.
That deal gave SAIC a controlling 51 percent stake in Shanghai GM. The two companies are also allied in a joint venture targeting the Indian market, and SAIC is a partner with GM in a third joint venture with Wuling to make small vans and work trucks in China.
China emerged in 2009 as the world's largest auto market, overtaking the United States.
In the second quarter, GM sold 586,000 cars in China through its joint ventures compared with 708,000 Chevy, Buick, GMC and Cadillac models in North America.
GM said this week it expects to sell 10 to 15 percent more vehicles in China next year, growth that would give it sales of more than 2 million vehicles.
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