General Motors Co.'s landmark initial public offering has already garnered $60-billion (U.S.) in orders, six times the amount it had planned to raise, in a sign of healthy investor interest for the massive automaker that was in desperate straits just over a year ago.
The robust demand for shares of GM, the American industrial icon which filed for bankruptcy in June, 2009, underscores growing investor confidence the auto industry has come through the punishing downturn of the past two years with sharply lower costs and higher profit potential.
GM's IPO is expected to price on Wednesday. The shares are expected to start trading on the New York and Toronto stock exchanges on Thursday.
The landmark IPO will likely price around the top end of the $26 to $29 per share range and the full overallotment option -- additional shares underwriters can sell to help stabilize the stock after it begins trading -- will likely be exercised, three people familiar with the matter said.
There is also "excess demand" for the $3-billion worth of preferred shares GM plans to sell, the sources said.
The strong response also bodes well for upcoming initial public offerings by other auto industry companies that restructured in bankruptcy, such as Chrysler and auto parts suppliers Delphi and Visteon, analysts said.
Just over a year after a politically unpopular $50-billion bailout that left the U.S. Treasury with a 61 per cent stake, GM filed to sell about $10-billion worth of common stock and $3-billion of preferred shares. Such an offering would mark the second-biggest U.S. IPO ever after Visa Inc. and one of the largest, globally.
The full overallotment could take the total IPO amount to as much as $15.65-billion. It would also cut the U.S. Treasury's stake to just over 40 per cent.
Pricing at the top end of the range and based on a diluted share count of roughly 1.9 billion, GM would have a market value of just over $55-billion, roughly on par with smaller rival Ford Motor Co.
For U.S. taxpayers to break even, GM needs a market value of roughly $70-billion.
GM is still accepting investor orders for shares in the IPO and is not expected to close the order books until early next week, the sources said. The sources did not have permission to speak publicly and declined to be named.
"There's already a tremendous amount of interest because [GM]restructured themselves completely," said Mirko Mikelic, a fixed-income portfolio manager at Fifth Third Asset Management, who plans to buy GM's preferred shares.
GM lost $88-billion from 2005 through just before its 2009 bankruptcy. Underscoring its turnaround it 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.
GM has said it can now break even at U.S. industry auto sales as low as 10.5 million vehicles. That means the restructured GM would have made money in 2008 when the old GM lost $31-billion.
Industry sales are expected to rise to 11.5 million vehicles this year from 10.4 million last year and are widely expected to recover to the pre-recession level of more than 15 million units in the next few years.
GM is in the final stage of talks to sell equity to Chinese partner SAIC Motor Corp. Ltd. in conjunction with the IPO and is likely to reach an agreement over the weekend, three sources said.
SAIC is interested in investing between $500-million and just over $1-billion in conjunction with GM's IPO, a source familiar with the matter said. SAIC has expressed interest in taking a larger stake of more than $1 billion if GM supports plans that would eventually allow China-developed vehicles to be sold under one of GM's brands in the United States, the source said.
Middle Eastern and Asian sovereign wealth funds have also committed to a combined $2-billion stake, the sources said.
In October, GM held meetings with Singapore-based GIC and Temasek Holdings, Kuwait Investment Authority, Qatar Investment Authority and the Abu Dhabi Investment Authority as a precursor to the funds potentially buying into its IPO.
While selling a big chunk of shares to overseas state-backed investors such as SAIC could trigger a political backlash, GM's advisers and underwriters have argued those investors could help provide long-term stability for GM's stock.
The U.S. Treasury will remain the largest shareholder after the IPO. The governments of Canada and Ontario and the UAW VEBA healthcare trust will also continue to hold shares, leaving some to wonder whether the IPO will allow GM to shed its "Government Motors" nickname.
"The market will obviously price all that in. Some investors are going to say the investment is still worth it now and others will say stay away. I think investors who stay away will probably end up regretting that," said David Whiston, an analyst at Morningstar.
"I think at $26 to $29 the shares look very cheap. I would not be surprised to see the final pricing come up a little bit. My own valuation is currently $44 per share."
Retail investors are expected to account for about 20 per cent of the IPO, two sources said. There is currently retail demand for $2-billion to $3-billion worth of shares, one source said.
GM was initially planning to allocate as much as 30 per cent of the IPO shares to retail investors, but shifted some of that allocation to institutional investors, one source said.