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Geely-Volvo deal financing totals $2.7 billion: sources
March 29, 2010 / 1:46 AM / in 8 years

Geely-Volvo deal financing totals $2.7 billion: sources

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.

<p>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. REUTERS/Roger Lundsten/Volvo Car Corporation/Handout</p>

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.

<p>Chairman of Zhejiang Geely Holding Group Li Shufu (L), Swedish Minister for Enterprise and Energy Maud Olofsson (C) and Volvo Cars Chief Executive Stephen Odell stand next to a Volvo S60 car at the Volvo plant and headquarters in Torslanda, Gothenburg March 28, 2010. REUTERS/Bjorn Larsson Rosvall/Scanpix</p>

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.

<p>The new Volvo S60 car is unveiled by Volvo Car Corp. President &amp; CEO Stephen Odell on the exhibition stand of Volvo during the first media day of the 80th Geneva Car Show at the Palexpo in Geneva March 2, 2010. REUTERS/Denis Balibouse</p>

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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