Pangda Starts NDRC Approval Process. Outcome Doubtful

“There is almost no chance for the government to approve Pangda’s purchase of Spyker’s stake, let alone their plan to set up a new joint venture in China,” so said Zhang Xin, an analyst at Beijing-based Guotai Junan Securities, to Bloomberg. “The deal doesn’t fit in the government’s plan for consolidation.”

This came in reaction to Spyker’s and Saab’s announcement of today which proclaimed that “Pang Da Automobile (Pang Da) has entered procedure discussions with Chinese authorities, including the National Development and Reform Commission (NDRC), to obtain regulatory approvals for the investment in Spyker Cars and Saab Automobile.”

In the announcement, Victor Muller said:

“Based on our discussions with Pang Da we are confident that Pang Da will get the regulatory approvals needed to formalize the deal. I am very much looking forward to creating a strong business with Pang Da, initially in the distribution and subsequently in the manufacturing of Saab vehicles in China. What needs to be pointed out is that Pang Da’s advance payment and sales of imported Saab cars are not subject to approval from the NDRC. The first advance payment of EUR 30 million was received last Tuesday.”

Pang Qinghua, CEO of Pang Da, was a bit less ebullient:

“The initial procedure discussions we have had with the NDRC were done in good spirit and all parties have a good understanding of the process going forward. We remain convinced that we will be able to get all the necessary documentation and approvals to successfully complete the transactions.

Pangda is willing to buy 24 percent of Spyker and by extension of Saab. Pangda wants to pay 65 million euros ($93 million) for that share. “The latter step will require approval from Chinese authorities, something that may not be easy to get,” says Reuters.

On the Chinese side,“Pangda needs to persuade at least three government agencies — the National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange — that it can profit from the deal and contribute to state policy of making the car industry more competitive,” Bloomberg explains.

Also according to Bloomberg,

“Pangda’s Spyker stake requires the approval of Sweden’s government and national debt office, the European Investment bank and GM. The EIB, the European Union’s lending arm, is Saab’s biggest creditor with a loan guaranteed by Sweden. The debt office has yet to receive any application on Pangda’s proposal, said Daniel Barr, the official handling Saab’s case. A decision may take three or four weeks after a filing, Barr said. “

A manufacturing joint venture in China will take even more complicated approvals. Time is money, and Saab has neither in abundance. The €30 million probably are not enough to pay off current supplier bills. Dagens Industri estinates Saab’s supplier debts at between two hundred and four hundred million kroner, or as much as €44m. The cars for which the €30 million have been advanced need to be made. For that, some 800 suppliers need to be made whole first.

What’s more, Reuters writes today that if the share purchase or the joint venture “fall through, Saab will have to repay the initial 30 million euros.”

Analysts in China, who have a deeper understanding of Chinese business and politics than Saab fanzines, are convinced that the deal will not receive the necessary permissions. “The car industry needs strong quality carmakers making good-quality cars with the right price,” Scott Laprise, an analyst with CLSA Asia Pacific in Beijing said to Bloomberg. “We don’t need more brands. A lot of the small carmakers know they are in trouble because consolidation is going to happen.”

For years, the Chinese government has demanded consolidation of its highly fractionalized auto industry. The consolidation did not happen so far. There are rumors going around in Beijing that that current downdraft in car sales is government-engineered to force the weaker players to throw in the towel. Independent Chinese makers are much harder hit by the slowdown than state owned enterprises that are in joint ventures with foreign makers.

What the Chinese government definitely does not want is more car companies. What many overlook is that China’s government itself is up to its eyeballs in car companies, China’s central government owns several car companies. In addition, many large provincial governments are owners of a car company. Shanghai for instance owns SAIC, the company that builds Buicks that share the same platform that underpin Saabs. Beijing for instance owns BAIC, the same company that had turned down an offer to buy Saab (and the legacy that comes with it) in 2009 for a token amount. BAIC instead bought core technology and tooling from Saab in 2009. The government will think of its own car companies first before it will approve yet another one whose joint venture partner has trouble paying suppliers. Add to that the fact that Saab has very little to contribute in own IP (most is licensed from GM) and you will understand why the deal appears very unlikely from a Chinese perspective.