Goldman Sachs' (GS.N) $334 million investment in Geely Automobile Holdings (0175.HK) will boost the Chinese automaker's global ambitions, including a potential bid by its parent for Ford's (F.N) Volvo brand.
Shares in Hong Kong-listed Geely spiked 26 percent on Wednesday after the company said it would issue convertible bonds and warrants to an affiliate of Goldman and will use proceeds for capital expenditure, working capital and potential acquisitions.
The addition of Goldman as a major investor could help China's 10th-largest automaker achieve its aspirations to secure global brands and technology from struggling Western rivals, said Yi Junfeng, an analyst with Changjiang Securities.
It's a wise move for Geely as it can use the money to build up capacity and free up capital for its parent, which has publicly announced its interest in Volvo, said Yi.
Earlier this month, Geely said its parent, Geely Group Holdings Co, planned to bid for Sweden's Volvo which media reports have valued at close to $2 billion.
Geely Group has also approached Magna International (MGa.TO) about a potential production partnership on General Motors' GM.UL European brand Opel, a source familiar with the matter told Reuters last week.
For Goldman, which could end up with 15.1 percent of Geely if it fully converts the bonds and warrants, the investment will give it exposure to China's fast growing auto market -- the world's largest.
We hope Goldman can help us to improve our operating efficiency, and that Goldman's network will help in our long-term development, said Geely Executive Director Lawrence Ang at a company shareholder meeting for an unrelated matter.
Geely's shares were suspended last week pending announcement of the convertible bond offer. They jumped to HK$2.25 per share when trading resumed on Wednesday, and traded up 19 percent at HK$2.13 at 12:07 a.m. EDT.
Geely will raise a total of HK$2.59 billion ($334 million) by issuing convertible bonds and warrants to GS Capital Partners VI Fund LP, an affiliate of Goldman Sachs.
Ang said money raised from the bond sale could be used to buy car-making plants from its privately held parent, which typically builds such plants and sells them to the listed company.
Geely, which competes against Chery Automobile and other local brands, has said it plans to nearly double its car-making capacity to 685,000 units a year in the next few years.
Hangzhou-based Geely posted 35 percent sales growth in the first eight months of the year to 185,000 units. China has been one bright spot in an otherwise struggling auto industry and is on track to post record auto sales this year.
Several Chinese automakers have moved to expand their global presence through deals with cash-strapped U.S. and European firms.
State-run Beijing Automotive Industry Holdings took a minority stake in Koenigsegg as part of the Swedish luxury carmaker's purchase of GM's Saab unit and Sichuan Tengzhong Heavy Industrial Machinery, a little-known Chinese firm, plans to take over GM's Hummer brand.
The growing clout of Chinese automakers has attracted other investors, with U.S. billionaire Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) last year agreeing to invest $230 million for about 10 percent of battery and electric car maker BYD Co Ltd (1211.HK). The investment has realized a $1.8 billion paper profit for Buffett.
(Additional reporting by Alison Leung and Fang Yan in Shanghai; Editing by Doug Young and Lincoln Feast)