Saab in €245m equity deal with Youngman

Financial Times, June 13, 2011

The company that owns Saab, the struggling Swedish carmaker, said it had reached agreement with two Chinese companies on a €245m deal to distribute and produce cars in China.

Zhejiang Youngman Lotus Automobile will take a 29.9 per cent interest in Spyker Cars, which owns Saab Automobile, for €136m, alongside dealership group Pang Da Automobile Trade Co, which signed an agreement in May to distribute and produce Saab’s cars in China, Spyker said on Monday.

Amsterdam-based Spyker had previously said it planned to add a third partner to a Chinese-bankrolled plan to rescue Saab by selling and producing its cars in the world’s largest car market.

Spyker said on Monday that it had signed a memorandum of understanding on the tripartite deal, and that it was subject to regulatory approval.

Automotive analysts in China were sceptical that authorities there would allow the deal to go ahead. Pang Da entered the frame after a proposed earlier deal with Hawtai, another Chinese carmaker, collapsed.

Foreign investments by Chinese companies are subject to approval by at least three government agencies, including the country’s National Development and Reform Commission, which recently has become stricter about the companies which it allows to set up joint ventures or plants.

Bill Russo, head of Synergistics, a Beijing auto consultancy, said: “Going public before doing the political engineering is generally not a pathway to success in China”.

Pang Da signed an MOU in May that would have seen the Chinese company pay €65m to take 24 per cent of Spyker on a fully diluted basis. With Youngman entering as a new shareholder in Saab’s owner, Pang Da will still take a 24 per cent stake, but raise its investment to €109m.

The three companies will set up joint ventures to distribute and produce vehicles under Saab’s brand and a new marque to be owned by the venture.

The partners will take stakes of about a third each in the distribution joint venture. Saab and Youngman would each take 45 per cent of the manufacturing tie-up, with Pang Da holding the remaining 10 per cent.

Separately, Saab said on Monday it was in talks to raise more cash by selling and leasing back its property, and would announce a deal shortly.

Saab, which employs about 3,700 people, has halted the line at its plant in Trollhättan, north of Gothenburg, several times since March because of problems paying its suppliers. Last week it stopped production again as it sought to shore up a consistent flow of parts.

The brand sold fewer than 32,000 cars last year.

Youngman produces buses and some cars for Lotus, the British niche sports car maker.

Yale Zhang, managing director of Automotive Foresight, an industry consultancy in Shanghai, said the deal had little chance of government approval because its small size contradicted the government’s oft-stated goal of forcing consolidation in the highly fragmented Chinese car industry.

Another analyst said that the proposed venture could face opposition because of a pre-existing deal under which Beijing Automotive Industry Corporation (BAIC) bought production equipment for two outgoing Saab models.

“Beijing is unlikely to give approval for a venture that will bring direct competition to BAIC”, said Namrita Chow, analyst with IHS Automotive.

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