GM Likely to File for IPO This Week to Repay Debt

Aug.17.10 | About: Motors Liquidation (MTLQQ)

According to reports, General Motors (OTC:MTLQQ) or GM is likely to file its paperwork for an IPO this week as government ownership is hurting the company's public image.

The news leaked soon after the company’s Chief Executive Officer, Ed Whitacre, announced its decision to step down from its position for undisclosed reasons. Dan Akerson, a telecoms and finance veteran, will replace him on Sep 1.

GM recorded a profit of $1.3 billion or $2.55 per share in the second quarter of the year, compared to a loss of 12.9 billion or $21.12 per share in the second quarter of 2009 when the automaker was in the midst of bankruptcy filing.

The profit can be attributable to the company’s aggressive cost reduction measures and streamlining of operations since its exit from the bankruptcy protection. The automaker relied heavily on rental-car, government and corporate fleets to drive sales, which are, however, less profitable than retail sales.

Revenues in the quarter scaled up 5.3% to $33.2 billion, driven by higher sales in every region, excluding Europe. In the U.S., GM witnessed strong sales of redesigned models of Chevrolet Equinox wagon and Buick LaCrosse sedan.

Post bankruptcy, GM is primarily owned by the U.S. government and Canada government, and by a trust fund providing medical benefits to United Auto Workers (UAW) retirees.

The U.S. government holds a 61% stake, the UAW union holds a 17.5% stake through its Retiree Medical Benefits Trust and the Canadian government holds 11.7%. The remaining shares went to the bondholders of the old company.

GM received $52 billion in U.S. Treasury (UST) loans by selling 61% ownership stake of the company and C$1.5 billion ($1.5 billion) in Export Development Canada (EDC) loans while going through the bankruptcy protection last year.

In April this year, GM repaid $8.1 billion in loans to the governments of U.S. and Canada, ahead of the scheduled maturity date of July 2015. The repaid amount constituted $6.7 billion in UST loans as well as $1.4 billion in EDC loans that it had received last year.

GM intends to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to the governments of Canada and Ontario through the public stock offering. The board has not yet decided the date of the stock sale. In general, an IPO takes place three months after the early paperwork has been filed.

GM may sell fully or part of its ownership by the federal government in the IPO. It must disclose to the Securities and Exchange Commission about the number of shares it would sell on the open market and the price at which they would sell their shares. The government would then convey to GM about the percentage of its stake that it would sell, which will be disclosed by the company in another filing.

However, GM faces a trade off. Its shares may be sold for an amount that is unable to generate funds to pay off government debts.