Autos News

GM says could use IPO to pay back U.S. gov't debt

DETROIT (Reuters) - General Motors Corp GMGMQ.PK could use the proceeds of an initial public offering of stock as soon as 2010 to begin paying down some of the debt it owes to the governments of the United States and Canada, a senior executive said on Friday.

General Motors Company President and CEO Fritz Henderson pauses before speaking with the media during a news conference at the GM headquarters in Detroit, Michigan July 10, 2009. REUTERS/Rebecca Cook

GM Chief Financial Officer Ray Young also said the automaker could move faster toward generating positive cash flow and achieving profitability than planned if U.S. auto sales recover in 2010.

“Naturally we would love to go faster and I’m sure the new GM board will push us to see whether we can accelerate these plans and actions,” Young told Reuters Television in an interview.

“We’re forecasting some modest recovery in 2010 in the United States but at this juncture it’s hard to predict what will happen in 2010,” he said.

GM, which emerged from bankruptcy on Friday, is now more than 60 percent owned by the U.S. Treasury. The governments of Canada and Ontario hold 11.7 percent. In addition, the new GM owes $8 billion to the U.S. and Canadian governments under loans that mature in 2015.

Young said GM could use an initial public offering of its shares, which could happen as early as 2010, to pay back debt.

“To the extent that we do an IPO, whereby, let’s say the government sells some of their shares but we also issue some new shares, those proceeds could be used to repay part of the US Treasury and Canadian government loans,” Young said.

As part of the deal to create the new GM by selling its best assets out of bankruptcy, the U.S. Treasury transferred the remaining $20 billion in government emergency financing to an escrow account for GM.

Those funds will be available to cover GM’s operational needs as it continues to burn cash this year. The automaker, which filed for bankruptcy on June 1, has lost over $80 billion and burned through over $40 billion in the past four years.

Young said it would be “premature” to say whether GM could decide to return some of the funds now in escrow to the U.S. Treasury.

He also said GM’s board could consider whether to prepay some of its looming pension obligations this year, a move that could shift some of the U.S. government funding it still holds to pay for future worker benefits.

“Now that we’re out of bankruptcy we’re going to look at what our options are,” Young said. “Some of our options would include looking at whether it makes sense for us to put some money into the pension plan this year. That’s something that we’re going to analyze over the next several months along with the new GM board.”

GM estimated earlier this year that it would need to contribute over $18 billion to its pension funds in the two-year span of 2013 and 2014.

The automaker is not required to make any pension contribution until 2013. GM’s pension assets fell to $84.2 billion as of the end of last year, making its two pension plans for white-collar and union-represented workers 87-percent funded on a combined basis.

Young said he was "puzzled" as to why stock in the old GM GMGMQ.PK, which now represents the shell company liquidating GM's excess plants and other assets, had gained sharply.

GM has warned investors that the stock is likely to be worthless since it will only have value once the claims of bondholders representing $27 billion in debt and other unsecured creditors are met in a continuing bankruptcy.

“The recovery to common shareholders will be ... de minimus if not zero,” Young said.

Editing Bernard Orr