Geely plans $250m bond issue not for Volvo

Geely Automotive, the Chinese carmaker which is eyeing Ford's Volvo unit, plans to issue convertible bonds and warrants worth $250 million, the China Business News said on Thursday. Geely has already suspended the trading of share and an executive from Geely Group has confirmed the size of issuance.

The executive claimed that such a fund-raising project had nothing to do with the acquisition of Volvo. Compared with the bid for Volvo, 250 million dollars is obviously insufficient. In the beginning of September, Swedish media reported that Ford would like to sell Volvo for 2 billion dollars. Till now Geely Automotive is the only bidder without any competitors. On September 8th, Gui Shengyue, the Chief Executive Officer and Executive Director of Geely Holdings, said that Geely is involved in the acquisition of Volvo. Mr.Gui announced that acquisition work was being handled by the parent company of Geely Holdings and Geely would like to buy out all the shares of Volvo. At present Ford also intends to sell the entire entity of Volvo. According to Mr.Gui, Geely may cooperate with another state-owned investment company to finish the acquisition project. Before Gui Shengyue revealed some information about the takeover rumors, Geely Automotive had not responded to the acquisition news officially.

Since then, the acquisition of Volvo has become a hot topic in the automotive market. It seems that Geely is indeed possible to take over Volvo. However, what should Geely do to finance such a large-scale acquisition work? In 2008, Volvo's sales reached 14.7 billion dollars with 16.9 billion loss, while Geely Holdings' sales were 4.29 billion yuan with a pre-tax profit of 920 million yuan. No surprisingly, Geely's decision to issue bonds will arouse speculation in market.

With the help of Hong Kong-listed Geely Holdings, Geely Automotive has already accomplished two overseas "bargain-hunting" tasks. In the March of 2009, Geely Automotive announced the acquisition of DSI, an Australian auto parts supplier. The cost was said to be less than 58 million Australian dollars. The executives of Geely Automotive claimed that DSI would be paid with the funds acquired from placing of existing shares.

Yin Daqing, the vice president of Geely Automotive, revealed some detailed information about the takeover deal when he was interviewed by the China Business News. Mr. Yin pointed out that at first Geely Automotive intended to deal with the acquisition work. Nevertheless, Hong Kong investors expressed their hope that such a deal should be in the charge of a listed corporation. Therefore Geely Holdings, a Hong Kong-listed company, became responsible for the acquisition project.

Before DSI deal, Mr. Yin had already managed to take over another company. In the October of 2006, after a series of complicated procedures, Geely Holdings became the largest shareholder of Manganese Bronze, a taxi producer in Britain. With the 30 percent share in hand, Geely propelled Manganese Bronze to found a joint venture with Shanghai Maple which is another subsidiary company of Geely Automotive. Investment companies helped Geely to deal with the establishment of such a new venture and Geely achieved absolute control of the venture.

However, since Mr. Gui Shengyue once said that the Geely Automotive would not take over Volvo through the channel of a listed company, there is no connection between the issuance of bonds and the listed company. Some analysts believed that the funds derived from the issuance of convertible bonds could enable Geely to expand production capacity. At present Jinan (the capital city of Shandong Province) and Chengdu (the capital of Sichuan Province) production bases of Geely are under construction .Before the suspension of trading, the share of Geely Holdings closed at 1.79 Hong Kong dollars, with a slump of 9.6% in the past month. According to the latest semi-annual financial report, in the first half of 2009, Geely sold 138,000 vehicles, up 29% over the same period of last year. Sales revenue was 5.95 billion yuan and net profit reached 596 million yuan with an increase of 145 percent.（Qinghua）

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