REFILE-UPDATE 2-Geely up on parent's Volvo bid, to boost brand

Thu Oct 29, 2009 4:59am EDT

(Refiles to correct grammar in second paragraph)

* Shares rise as much as 4.5 pct to record high

* Zhejiang Geely says made great effort and well prepared

* Analysts say Volvo buy could help Geely's brand building (Adds analysts quotes)

By Alison Leung and Fang Yan

SHANGHAI, Oct 29 (Reuters) - Geely Automobile (0175.HK), whose shares have soared as its parent's bid for Ford's (F.N) Volvo, could win a valuable brand if the bid succeeds, but could take years to see profits from the loss-making Swedish carmaker.

Home-grown Geely, which means "lucky" in Chinese, is hungry for modern and innovative technologies that can upgrade its cars to tap the growing affluent auto market in China, the biggest in the world.

"I think the market is still divided on the Geely deal," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.

"If its parent indeed gets Volvo and the deal serves it well, the listed firm would benefit tremendously. But if they are unable to handle Volvo ... the listed company will suffer."

Market watchers have been hopeful that Geely, which used to make China's cheapest cars, would reap benefits in better brand recognition and new technology if its parent, Zhejiang Geely Holding, can buy Volvo and turn the company around.

Investors have bid up Geely's stock more than four-fold this year, sending it to a record high on Thursday, even as the broader market slipped.

Ford Motor named Zhejiang Geely Holding Group as a preferred bidder for its loss-making Swedish unit Volvo Car Corp late on Wednesday, bringing the long-running sale process closer to a conclusion. [ID:nLS682068]

"That for sure will shorten the technology development time for Geely," said Vivien Chan, auto analyst with Sinopac Securities Corp.

"If the parent company buys Volvo, it will fine tune its production line before it will be injected into the listed firm, and it probably will take a few years," She added.

GROWTH STOCK

Geely shares rose as much as 4.5 percent to HK$3.0, the highest since the company was listed in 2004 after buying a shell company. The stock ended Thursday up 2.1 percent, beating the benchmark index .HSI, which fell 2.3 percent.

Other Chinese car stocks were also higher with SAIC Motor Corp (600104.SS), China's largest automaker, rising 1.6 percent in Shanghai on expectations of strong quarterly results to be announced on Friday.

Chinese automakers have mostly benefitted from Beijing's policy support, which includes tax incentives for small cars and subsidies for vehicle buyers in rural areas.

The country's September car sales jumped nearly 84 percent and are set for a record in 2009, in sharp contrast to a dismal U.S. market where auto sales tumbled 23 percent last month.

Zhejiang Geely said its bid is supported by Chinese banks and it will now embark on further detailed discussions with Ford.

"We have made great effort and are well prepared. But whether the deal will go through depends entirely on the negotiation," Yuan Xiaolin, a spokesman for Zhejiang Geely told Reuters.

Both Ford and Zhejiang Geely did not disclose a possible sale price in what could lead to the biggest overseas acquisition by China's fast-growing auto sector.

Media reports suggested the price tag for Volvo could be closer to $2 billion than the $6.45 billion Ford paid for the Swedish car maker in 1999.

Geely shares have soared this year on the Volvo hope and strong car sales in China, as well as an investment by Goldman Sachs (GS.N) in the company's convertible bonds. [ID:nHKG311594]

But some analysts doubted Geely's ability to manage a global car company. (Reporting by Fang Yan and Alison Leung; Editing by Jean Yoon)

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