Geely-Volvo deal financing totals $2.7 billion: sources

HONG KONG/LONDON Mon Mar 29, 2010 11:46am EDT

1 of 3. Chairman of Zhejiang Geely Holding Group Li Shufu (L) and Executive Vice President and Chief Financial Officer of Ford Lewis Booth (R) shake hands after signing the Stock Purchase Agreement at the Volvo plant and headquarter in Torslanda, Gothenburg, March 28, 2010.

Credit: Reuters/Roger Lundsten/Volvo Car Corporation/Handout

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HONG KONG/LONDON (Reuters) - China's Zhejiang Geely Holding Group has lined up total financing of $2.7 billion to back its purchase of Ford Motor's (F.N) Volvo car unit, sources said on Monday.

The extra $900 million above the reported purchase price will allow the Chinese auto maker to grow its business and draw down capital during fallow cycles in the auto industry.

Ford and Geely announced their deal on Sunday, saying that China's largest privately-run car maker would pay $1.8 billion for Volvo.

The breakdown of the offer includes a $200 million note presented by Ford, $1.6 billion in equity and $900 million in so called working capital, the sources said, a sum that can be used for new product investments, launch costs, potential plant upgrades and rainy day money to weather cyclical downturns.

Of the $1.6 billion in cash, a small majority comes from Geely, while the rest comes from provincial Chinese government investment vehicles, the sources said, adding that the remaining money comes from Chinese and overseas lenders.

In December banking sources briefed on the plan said major Chinese banks including Bank of China (3988.HK) (601988.SS), China Construction Bank (0939.HK) and Export-Import Bank of China had agreed to extend loans to Geely.

It is not clear if these banks were among the lenders providing working capital in the deal unveiled on Sunday.

One of the sources said that Volvo also has around $450 million in cash.

"The big thing here though is that it (the purchase) is the first of its kind," the source said, who asked not to be named because he is not authorized to speak on the record about the transaction.

"This deal does change the game significantly. In 10 years time, the Chinese auto market will double the size of the U.S. market."

A spokesman for Geely declined to comment.

(Editing by David Cowell)

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Comments (2)
JJWest wrote:
Ford paid $6.4 billion and got back $2.7 billion??????? no wonder the geniuses in Detroit got into trouble. Ford was no exception — it just got into trouble first and unloaded the luxury group first.

Mar 29, 2010 3:43pm EDT  --  Report as abuse
tbink wrote:
Capitalism gone mad!
Why dont you sell the family silver as well?
Idiots selling out to China again!! Will you ever learn?

Mar 30, 2010 2:23am EDT  --  Report as abuse
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