GM to Use Option to Buy 1% of China Venture, Akerson Says

General Motors Co. (GM), the biggest overseas automaker in China, said it intends to exercise an option to buy back a 1 percent stake in its main car venture in the country to make it an equally held unit with its partner.

“We have an option to buy that 1 percent,” Chief Executive Officer Dan Akerson told shareholders yesterday at the automaker’s annual meeting in Detroit. “It’s our intention to exercise that.”

GM sold a 1 percent stake in Shanghai General Motors Co. to partner SAIC Motor Corp. in 2010, reducing its holding to 49 percent. GM received a call option at the time to repurchase the 1 percent stake.

SAIC, China’s largest domestic carmaker, paid $84.5 million for the shares, which allowed it to include Shanghai GM’s revenue in its accounts as a majority shareholder under new local accounting standards. The deal was approved by Chinese government in February 2010.

“Any possible repurchase by GM needs to meet the condition that SAIC can include Shanghai GM’s revenue into our accounts,” Zhu Xiangjun, a spokeswoman for SAIC, said by telephone. “That’s why we bought the shares in the first place.”

GM can repurchase the stake if SAIC is able to include Shanghai GM revenue in its accounts without relying on the additional 1 percent stake, the Shanghai-based automaker said in a statement to the city’s stock exchange on Feb. 23, 2010.

‘Attractive Terms’

“GM may find it difficult to buy back its stake because it’s not in the interest of SAIC or the Chinese government to sell,” said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. “The Chinese government has been encouraging automakers to be independent and they’re unlikely to approve GM’s repurchase unless GM can offer some attractive terms in exchange.”

In China, GM also holds a 44 percent stake in SAIC-GM- Wuling Automotive Co., which sells the country’s bestselling vehicle, the Wuling Sunshine minivan.

Even as the automaker sells more cars in China than in the U.S., it earns more profit in the U.S., where it delivered 2.22 million vehicles in 2010. GM’s North American operations had profit before interest and taxes of $2.13 billion in the second quarter, while the company’s international operations, including China, earned $646 million, it said Nov. 10.

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.