ERJ staff report (AN)
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 Co.'s Volvo car unit, sources said today.
The extra $900 million above the reported purchase price will allow the Chinese automaker 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. The $900 million can be used for new product investments, launch costs, potential plant upgrades and rainy day money to weather cyclical downturns, the source said.
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, China Construction Bank 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 authorised 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.
From Automotive News (A Crain publication)