China's SAIC Motor Corp. Ltd. has agreed to take a stake in General Motors Co. if Chinese regulators approve a deal to deepen an existing alliance between the two automakers, four people familiar with the matter said.
The potential investment from SAIC is part of a surge in investor interest in GM that is expected to push the pricing of its shares to $29 or above in the U.S. automaker's initial public offering, one of the sources said.
Another source said SAIC, GM's partner in China, would take a stake of around 1 percent in the automaker, majority owned by the U.S. Treasury after a bailout last year.
An investment of just over $500 million would represent about 1 percent of the common stock in GM if the IPO prices at the high end of the proposed range this week.
Apart from further cementing their tie-up in China, SAIC was also taking part in the deal to gain access to GM's sales networks outside China, including in Europe, one source told Reuters.
SAIC Chairman Hu Maoyuan had said previously the automaker will revive production at its U.K. plant and make MG cars available in Britain and the rest of the European Union in 2011.
"That would be a great help for the Chinese automaker which had aimed to start selling its MG cars in Europe next year," said another industry source.
SAIC's shares traded in Shanghai rose 1.1 percent to 18.2 yuan, outperforming a 0.5 percent fall in the benchmark index.
China's government would have to approve the SAIC investment before Wednesday for it to go forward as part of GM's IPO, the sources said.
GM had no comment, while SAIC representatives declined to comment. China's commerce ministry could not be reached immediately.
Talks between the two sides have been under way for more than two months and have covered a range of topics including the deepened cooperation in the development of electric vehicles and support for SAIC's ambitions to move beyond the China market, sources have said.
At one point last week, U.S. and Chinese officials became involved in the discussions between GM and SAIC, the person said.
That reflects the government ownership stake in both automakers and the potential U.S. political sensitivity around a Chinese investment in GM, a company still seen as an icon of American industry, the person said.
Until this week's expected IPO, the U.S. Treasury will hold almost 61 percent of GM as a result of the Obama administration's decision to fund the top U.S. automaker's restructuring in a 2009 bankruptcy.
The U.S. Treasury had no immediate comment.
The discussions between GM and SAIC remain private and the top U.S. automaker remains in a quiet period because of securities regulations related to its IPO.
For that reason, the sources were not authorized to discuss the negotiations between SAIC and GM publicly.
A decision by SAIC to invest in GM would underscore the U.S. automaker's competitive strength in China, now the world's largest auto market, analysts have said.
A central part of GM's pitch to investors has been its Shanghai-GM joint-venture with SAIC. The Chinese automaker has a 51 percent stake in that joint venture as part of a deal struck with GM last year.
In another China-related move ahead of the IPO, GM said last week it had struck a deal to buy an additional 10 percent stake in its Wuling joint-venture that makes small commercial vans.
That deal will give GM a 44 percent stake in the joint-venture for $51 million subject to approval by the Chinese government.
Through its joint-ventures in China, GM claims a 13 percent market share in China, the largest in the industry.
Morgan Stanley, JPMorgan, Citi and Bank of America are the lead underwriters on the deal, which has a total of 35 underwriters, including China's ICBC and CICC.
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