NEW YORK (Reuters) - Strong investor demand is expected to drive the pricing of General Motors Co’s GM.UL initial public offering to $30 per share or higher, above the initially proposed range, two people familiar with the matter said on Monday.
GM earlier filed to sell shares for $26 to $29 each.
A higher per-share price reflects growing investor confidence about the top U.S. automaker, which emerged from a U.S. government-financed bankruptcy last year with sharply lower costs and higher profit potential.
It would also reduce the expected losses for the U.S. Treasury, which owns nearly 61 percent of GM as a result of its $50 billion taxpayer-funded bailout, in the first tranche of the stock sale.
“Demand is high and the range is moving up. GM is in an easy position to ask for a higher price,” one of the sources said, adding that the IPO could price as high as $33 per share.
IPOs are typically priced at a 10 percent to 20 percent discount to reward investors for taking a risk on a new issue.
It is not an advantage to price shares too high. The U.S. Treasury, for example, will have more shares to sell after cutting its stake to just over 40 percent in the IPO, and wants to ensure sufficient investor demand to exit its entire stake, sources said.
The sources cautioned that no new pricing range has been finalized and GM is unlikely to file an amended prospectus with a higher price range.
SAIC Motor Corp (600104.SS), GM’s longtime partner in China, is set to take a stake of at least 1 percent in GM as part of the IPO, one source said.
GM’s IPO is expected to price on Wednesday and begin trading on the New York and Toronto Stock Exchanges on Thursday. At $30 per share, GM would raise about $10.95 billion in common stock.
GM has filed to sell about $10 billion worth of common stock at the midpoint, and $3 billion worth of preferred shares, but is seeing out-sized demand even before the order books close.
Based on a diluted share count of 1.9 billion, $30 per share would give GM a market value of about $57 billion. GM needs a market value of roughly $70 billion for U.S. taxpayers to break even.
The former head of the Obama administration’s auto task force, Steve Rattner, said on Monday that GM’s IPO will almost certainly price above the top end of the $26 to $29 per share price range.
“Absent some dramatic change in the world in the next 48 hours, this will definitely price above the range,” Rattner told Reuters in Detroit.
The success of GM’s IPO, coupled with renewed investor confidence in the auto market, will also help Chrysler’s bid to return to the stock market in the second half of 2011, Rattner said.
GM’s IPO is expected to be the second-biggest U.S. IPO after Visa Inc (V.N) and one of the biggest IPOs of all time globally.
GM lost $88 billion from 2005 through just before its 2009 bankruptcy. Underscoring its turnaround, GM earned a $4.1 billion net profit in the first nine months of the year and is on track for its first full-year profit since 2004.
Automakers other than SAIC have expressed interest in taking a stake in the GM IPO, people familiar with the matter said, but one source said that SAIC is expected to be the only automaker to buy into the offering.
“You have to separate the tire kickers from the real buyers. It’s unlikely that anybody except SAIC is a buyer,” the source said.
Rattner told Reuters that the stakes to be taken in the new GM by SAIC and other foreign investors should not color U.S. consumer perceptions of the automaker.
“All kinds of public companies in this country have significant foreign ownership... we now live in a global economy,” Rattner said.
Sovereign wealth funds in the Middle East and Asia have committed about $2 billion to the IPO, sources have told Reuters. While the investment by overseas state-backed funds could create a political backlash, GM’s advisers and underwriters have consistently argued that such investments could contribute to the long-term stability of the stock.
Meanwhile, GM’s preferred shares were expected to have a dividend between 5.5 percent and 6 percent according to a terms sheet obtained by Reuters.
The range for the dividend has been narrowed to between 4.75 percent and 5.25 percent, according to CNBC.
Reporting by Soyoung Kim, Clare Baldwin in New York and Philipp Halstrick in Frankfurt, additional reporting by James Kelleher in Detroit; Editing by Phil Berlowitz, Matthew Lewis, Gary Hill