By on October 22, 2012

Hong Kong, and I speak from experience, is a great place to incorporate, to save taxes, and to throw a cloak of secrecy over financial operations which otherwise would be out in the open. In the case of GM, it is also a great place to save their Korean behinds. In December 2009, GM sold a 1% stake in its Shanghai-GM (SGM) joint venture to the Hong Kong part of its Chinese partner SAIC for the paltry sum of $85m. GM also put its India business into a Hong Kong based joint venture (HKJV). GM provided the India business, SAIC provided cash. As it turned out later, unearthed in Ed Niedermeyer’s seminal oeuvre about the mystery golden share, SAIC also underwrote a $400 million loan. In its darkest hour at the end of 2009, GM was kept afloat by the Chinese. Now, history seems to repeat itself in some convoluted way.

Also at the same time in 2009, the Korean Development Bank was trying to gain control of GM-Daewoo. That company, GM’s main source of low-cost, fuel-efficient car development, was in urgent need of cash which GM did not have. GM-DAT was kept in the GM fold after a $413m cash injection into its Korean subsidiary, only weeks before the Hong Kong deal. The money came from China via Hong Kong.

Three years later, GM is sitting on a taxpayer-enhanced $33 billion cash pile, and it seems to be time and opportune to use some to unwind some Asian positions. Again, the hub is Hong Kong. Last week, it became known that GM buys back most of the shares in is (Hong Kong held) India business for the again paltry sum of $125 million, leaving partner SAIC with a token 7 percent. On paper, this was a great deal. When GM put its India business into the HKJV, the business was, according to SEC filings, valued at $200 million. Now, most of it is coming back for $125 million. Not that SAIC would receive that money. GM did a capital raise, SAIC elected not to match it, and was diluted to 7 percent. It is surprising that SAIC would let control slip so easily. India is the world’s next growth market, with a capacity rivaling that of China. The Chinese car industry was effectively locked out of India, SAIC snuck in on GM’s coat tails. And now we are supposed to believe that SAIC walked away from that prize, after it had put in anywhere between $300 and $500 million in cash? Highly un-Chinese.

Be it $200 million or $125 million, the amounts are awfully low for Indian car plants with a capacity of more than 300,000 units per year. As a comparison: Tesla, a company that had nothing more than big ideas and a few prototypes of EVs of dubious value, could raise $226 million at the IPO. As another comparison: BMW budgets $260 million for a pocket-sized 30,000 unit plant in Brazil that does nothing more than assembling kits from Germany. These Indian numbers simply do not compute.

Remember Korea? As if on cue, Korea pops up after some strange Hong Kong transactions are settled. Over the weekend, Reuters reported that GM made an “informal offer” to the Korea Development Bank to buy back the 17 percent the bank holds in GM Korea. GM currently owns 77 percent. A price was not released.

How does this all fit together? We have no idea. However, we are sure it does.

And remember the famous golden share? In April, it was announced that GM would get the 1 percent share in its Chinese joint venture back, for a huge price: GM and SAIC established a sales company, SGMS. SAIC received a 51 percent majority control of the sales company. So far the theory. The reality, filed in the most recent 10-Q to the SEC, looks different. In the document, GM is listed as a 49 percent owner of SGMS. And it is still listed as a 49 percent owner of Shanghai General Motors (SGM). According to the SEC filing, SAIC has 51% both in the new sales company and the old joint venture.

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