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Ottawa, Ontario to get back small portion of GM aid Add to ...

Canadian governments will recoup only a fraction of their $9.5-billion (U.S) investment in General Motors Co. when the one-time largest auto maker in the world completes the latest phase of its historic restructuring later this month.

The reborn company is expected to file documents Tuesday with the U.S. Securities and Exchange Commission (SEC) showing that its initial public offering of common shares will be priced between $26 and $29 when it is launched later this month.

Almost all of the federal and Ontario contribution to the rescue package is in the form of share equity, so most of what the two levels of government can hope to recoup will be subject to the whims of the stock market over the next eight years. At a price of $26 a share, they hold an equity stake in General Motors worth about $1.9-billion (including $400-million in preferred shares), a small portion of what they pumped into the company in June, 2009, to keep it afloat while it went through Chapter 11 bankruptcy protection.

The two governments will cut their combined equity stake in the auto maker's common shares to 9.6 per cent from 11.7 per cent, according to a Reuters report. Government officials in Ottawa and at Queen's Park declined to comment on how much they'll hold.

General Motors is expected to make the announcement either Tuesday after markets close or Wednesday morning. A federal official confirmed Ottawa will then announce its intention to sell some of its GM shares.

"When the IPO goes live, obviously we'll start divesting our shares," said the official, who stressed that it is premature to speculate how many shares would be involved.

The Canadian governments hold 58.4 million common shares and 16.1 million preferred shares that are redeemable at $25 each, according to filings made last week with the SEC.

Under the terms of the bailout deal, the federal and Ontario governments cannot hold on to their shares in the hope of selling them at the best possible price. They must sell a minimum of 5 per cent each year following the initial public offering. How much is recovered will depend on investor appetite for General Motor's shares.

Ottawa and Ontario must also divest 30 per cent of their equity within three years, 65 per cent within six years, and be out altogether by 2018. The only wiggle room is a pledge, cited by a federal official, that the governments "won't sell our shares at a time which is prejudicial to the value of those shares to the taxpayer."

At the time of the bailout, Prime Minister Stephen Harper described it as a "regrettable but necessary step" to protect Canada's economy during the worst global recession in a half-century.

The cost of rescuing General Motors and Chrysler pushed Ottawa and Ontario deeper into the red.

On June 1, 2009 - the same day the General Motors package was unveiled - Ontario Finance Minister Dwight Duncan said the province's deficit would climb 31 per cent, to $18.5-billion. Ottawa added between $8-billion and $10-billion to its deepening deficit as a result of the auto loans.

So far, the governments have recovered the 14 per cent of the bailout package that was in the form of repayable loans. General Motors paid back the $1.3-billion last year.

About $5-billion worth of the money from Canadian taxpayers has been funneled to the unionized pension plans of General Motors of Canada Ltd., which had a shortfall of several billion dollars when the auto maker when into Chapter 11 protection.

The Canadian unit did not go into protection under the Companies' Creditors Arrangement Act.

With files from reporter Bill Curry in Ottawa

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