GS Capital Partners confirms HK$2.6bn Chinese car deal

The investment in Hangzhou-based Geely Automobile Holdings is structured in the form of convertible bonds and warrants.

GS Capital Partners, the private equity unit of US bank Goldman Sachs, has agreed to invest approximately HK$2.6 billion ($334 million; €227 million) into Geely Automobile Holdings.

The investment takes the form of convertible bonds and warrants. The bonds are convertible into 998 million new Geely shares, based on a conversion price of HK$1.90 per share, a premium of 6.1 percent over the last closing price, according to a Geely statement.

The firm will also receive about 300 million warrants, which can be used to subscribe for one share each at an exercise price of HK$2.30 per share, a premium of 28.5 percent over the last closing price, the statement noted.

Hong Kong-listed Geely suspended the trading of its shares last Wednesday; its shares last traded at HK$1.79.

Approximately HK$1.9 billion in proceeds from the convertible bonds will be used to finance the company’s potential acquisitions and corporate expenditures. The additional HK$689 million to be raised from the full exercise of the warrants will be used for general working purposes, the statement added. The Financial Times reported earlier in the week that the investment would be used to triple production capacity at the car maker’s Hunan plant to 150,000 units.

Headquartered in Hangzhou, Geely is China’s first independent automaker. The company’s primary export markets include the Middle East, Eastern Europe, Africa, Southeast Asia and Central and South America. For the six months ended 30 June, it booked revenues of approximately RMB5.9 billion ($864 million; €585 million), nearly 88 times as much as it made in the same period last year.

In June, Bohai Industrial Investment Fund Management and CDH Investments were among domestic private equity investors which paid $293 million for a 20 percent stake in another Chinese car maker, Chery Automobile, according to The Wall Street Journal. 

GS Capital Partners is presently investing GS Capital Partners VI, its sixth global fund, which closed on $20.3 billion in 2007. This May, the firm sought approval from the fund’s LPs to invest half of its $9 billion in uninvested capital in distressed investments and securities. Another $1.5 billion would go to portfolio companies it already owns and the remaining $3 billion would go to new deals, the firm said at the time.