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GM and it’s IPO

Posted by Bill Sluben on July 5, 2010

In the hope of stabilizing its post-bankruptcy financial standings, General Motors (GM) will be unlocking 20 billion dollars (US) in initial public offering (IPO) by next month.

Although there have been no concrete announcements yet from the management, finance expects could still not figure out how much would be the prices of stock valuation.  Cutting the valuation of its IPO, General Motors will be able to establish a broader base of investors and reduce its dependence to government aid. General Motors declared bankruptcy last year and sought a federal protection by invoking Chapter 11 of the United States Bankruptcy Code.

More than 60% of the General Motors’ common shares are owned by the U.S. Treasury and will probably be selling twenty to forty percent of its current level. Currently, the estimated value of the government’s shares is around 11 billion dollars.

A number of banks are also likely to venture into a revolving credit line for the General Motors amounting to 5 billion dollars. As of press time, the Citigroup Inc, Bank of America Corp. and JP Morgan Chase & Co as well as Morgan Stanley have declared intent to provide the GM with 500 million dollars of credit from each of them. More banks are still to follow.

General Motors is not likely to pay the dividends to its shareholders but will plan to sell about 3 billion dollars of mandatory convertible securities to avail regular interest or payment to dividends that will sooner convert into shares in the near future. In this way, growth funds investors will definitely find interest to come in.  Two major shareholders, the United Auto Workers Healthcare Trust which controls 17.5 percent of the company’s total shares and the Motors Liquidation which holds 10 percent of stocks is yet to decide whether or not they will sell parts of their shares in the planned initial public offering.

The Government of Canada having sliced up an 11.7 percent of the General Motors shares has been planning to sell around 20 percent of its current shares.

General Motors’s IPO at 15 to 20 million will be a record-breaking venture under Obama’s government. It will surpass Visa Incorporated’s 19.7 billion IPO last 2008.

But the General Motors even with the huge IPO plan still have to convince potential investors that its recovery is already gaining ground. At the end of March, General Motors still have al outstanding debt of 14.2 billion dollars and 27 billion short of its pension funding obligation during the first quarter period. Certainly, the company can utilize its IPO earnings to pay its debts and end its standing pension shortfalls.

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