GM sells 1% of China Operations for 20% of the Value
At first, it seems like a good deal. Dig a little deeper, and it seems like a terrible deal. Dig a little deeper, and it seems like a loan.
Basically, GM has agreed to sell 1% of its 50/50 JV with SAIC in China - which has been a major source of growth recently - for 20% of the value of the JV. While this is a good way for GM to raise money, it means ceeding control of one of its most important development opportunities. But, the agreement also has a provision that GM can buy back the 1% in the future "at a premium price." In other words, this is just a loan.
GM is obviously hurting for cash, so this is not a bad idea. But specifically, they have been told that they cant use their US $ from the Govt. etc to prop up Daewoo, which went belly up with bad debt earlier in the year. So, the China money will be used for Daewoo, while the US money goes towards freeing the company from the jackheel of the administration, something GM wants done as soon as possible.
Basically, GM has agreed to sell 1% of its 50/50 JV with SAIC in China - which has been a major source of growth recently - for 20% of the value of the JV. While this is a good way for GM to raise money, it means ceeding control of one of its most important development opportunities. But, the agreement also has a provision that GM can buy back the 1% in the future "at a premium price." In other words, this is just a loan.
GM is obviously hurting for cash, so this is not a bad idea. But specifically, they have been told that they cant use their US $ from the Govt. etc to prop up Daewoo, which went belly up with bad debt earlier in the year. So, the China money will be used for Daewoo, while the US money goes towards freeing the company from the jackheel of the administration, something GM wants done as soon as possible.
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