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GM to file for $20b IPO in August

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General Motors Co GM.UL plans to file its nearly $20 billion initial public offering in mid-August, a source familiar with the situation said Friday, later than some expected as bankers work to help sort out the automaker’s finances post-bankruptcy.

General Motors is also in talks with banks for a revolving credit line worth $5 billion, sources said. Bank of America Corp (BAC.N), Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) have already agreed to provide $500 million of credit each, with other banks still to be chosen, a source said.

The credit line is expected to be finalized in the next two weeks, about a month before the automaker files for its IPO, a source said. Earlier media reports said the IPO filing was expected in early July.

GM spokeswoman Noreen Pratscher declined to comment.

GM, which declared bankruptcy last year, has emerged from Chapter 11 protection, and an IPO is a key step for the automaker to wean itself from government support.

GM is more likely to cut the valuation on the IPO than delay it and is looking for a broad investor base, said one source, who requested anonymity because the talks are confidential.

The U.S. Treasury, which owns nearly 61 percent of the automaker’s common shares after a $50 billion bailout, plans to sell 20 percent to 24 percent of its stake — $10 billion to $12 billion worth of shares, sources said. The sources cautioned the details of the deal are not yet finalized and could change.

A Treasury official said it is too early to say how much it would sell.

“The pricing and ultimate size of Treasury’s stake are decisions for later in the year,” the Department official said.

GM is not expected to itself sell shares immediately, but plans to sell about $3 billion in mandatory convertible securities that convert into shares in the future, a source said.

GM is not expecting to pay dividends to shareholders in the near term, so the company hopes mandatory convertibles, which offer regular interest or dividend payments to investors before turning into stock, could attract dividend and growth fund investors, the source said.

The governments of Canada and Ontario, which own 11.7 percent of the company, are planning to sell 20 percent of their stake, a source said.

The United Auto Workers healthcare trust holds 17.5 percent of the company and the old GM, now known as Motors Liquidation, holds 10 percent. It is unclear if it will sell shares in the IPO, two sources said.

A successful IPO would be an important political win for the Obama administration, which engineered bailouts for both GM and its smaller rival Chrysler in 2009 in the face of Republican criticism and public opposition.

A $15 billion to $20 billion IPO by GM would be the largest U.S. IPO since Visa Inc’s (V.N) offering of $19.7 billion in March 2008, according to Thomson Reuters data, and one of the biggest U.S. offerings of all time.

Investors say that, while such a large offering will attract attention, they want proof that “Government Motors” has truly turned itself around.

The carmaker was down to its final dollars before last year’s government bailout and bankruptcy financing. It reported $14.2 billion of debt at the end of March and had a $27 billion pension funding shortfall at the end of the first quarter.

A source said proceeds from the IPO are expected to be used to repay debt and help fund GM’s pension liability.

A $5 billion line of new credit would provide GM with an additional liquidity cushion in the event of a possible double-dip recession and also bankroll GM’s expansion in global markets, including China, a source told Reuters.

The full underwriting syndicate has not been decided but JPMorgan and Morgan Stanley (MS.N) are the lead underwriters on the deal. Lazard Ltd (LAZ.N) and Boston Consulting Group are advising the U.S. Treasury on the GM IPO.

Source: Reuters

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