By Agency reporter

Wednesday, 3 Nov 2010

NEW YORK: General Motors plans to sell just over $13bn of shares in its Initial Public Offer, people familiar with the plan said, cutting the United States government‘s stake, while opening the door for investment by overseas state-backed investors.

GM will file the terms in an updated prospectus for its initial public offering with the US Securities and Exchange Commission on Tuesday, the sources said.

According to Reuters, the company expects to sell 365 million common shares at between $26 and $29 each, raising between $9.5bn and $10.6bn, they said.

In addition, GM plans to sell $3bn of preferred shares that would convert to common shares under mandatory provisions.

GM, which emerged from bankruptcy in July 2009 with the US Treasury as its majority shareholder, is likely to sell a combined $1.5bn to $2bn stake to four or five sovereign wealth funds, two of the sources said.

GM and the US treasury have repeatedly declined to comment on the details of the IPO, citing US SEC regulations.

The IPO could value the entire company close to $60bn, below the $67bn needed, if US taxpayers are to break even on the common stock held by the Treasury, another source said.

By comparison, Ford Motor has a market capitalisation of about $48bn. Toyota Motor Corporation has a market value of about $120bn.

The sources declined to be named, because the preparations for the IPO are not public. It was not immediately known by what ratio GM‘s common stock would be split in advance of the IPO.

The Treasury, which holds a 60.8 per cent stake in GM, as a result of its $50bn bailout, is prepared to take a loss on the initial sale of stock but hopes to break even over time, as the stock appreciates, sources had said previously.

The GM IPO has long been expected to raise between $10bn and $20bn, making it one of the largest US stock offerings ever. Visa Incorporated raised $19.7bn in 2008, in the biggest US IPO.

GM‘s IPO would allow the US Treasury to reduce its stake to 43.3 per cent, excluding a likely overallotment option, two of the sources said.

If there is an overallotment, the IPO could raise another $1.5bn, one source said.

The governments of Canada and Ontario are expected to sell down their combined stake to 9.6 per cent from 11.7 per cent and the UAW VEBA trust is expected to reduce its stake to 15 per cent from 17.5 per cent, the sources said.

GM is expected to begin its IPO roadshow on Wednesday. It is expected to price its IPO on November 17, and trading in the stock is expected to start on the New York and Toronto stock exchanges on November 18, the sources said.

The filing comes days after GM announced moves to strengthen its finances, including repaying $2.1bn to US taxpayers and making early payments to pension and retiree health plans.

GM will have two groups for the roadshow, whose stops will include New York, Boston and key financial centers in Europe, Asia and the Middle East, the sources said.

Chief Executive, Dan Akerson plans to shuttle between the two groups, which will be led by top GM executives, one of the sources said.

During the roadshow, GM executives and their advisers are expected to emphasize the automaker‘s strong position in China, the slowing pace of losses at its Opel unit in Europe, and its lowered break-even point in the US market, sources have said.

GM Chief Financial Officer Chris Liddell, who is expected to be a key player in the roadshow, said in May that the automaker was set up to break even with industry-wide US sales of about 11 million vehicles annually.

But cost-cutting progress by GM has reduced that threshold even further, a positive point the automaker will tout to investors, one source said previously.

US auto sales are expected to rise to about 11.5 million vehicles this year from 10.4 million last year.

On Tuesday, automakers are scheduled to report U.S. sales for October, which are expected to show the strongest monthly sales of 2010.

The GM IPO has been closely watched both because of its expected scale and because of the involvement of the US government.

Bankers representing GM met with sovereign wealth funds in Asia and the Middle East over in the first two weeks of October to make the case that the automaker has emerged from its bankruptcy as a leaner and more nimble competitor, sources told Reuters previously.

Source: Punch