Government May Block Hummer Sale. The Chinese Government.
The sale of Hummer to Sichuan Tengzhong Heavy may run afoul of the government, Bloomberg reports. The Chinese government. After Hummer hit the wires on Tuesday, there were increasing rumors in Beijing that China’s central government is not particularly thrilled. The acquisition runs contrary to two of China’s declared goals.
Yi, China wants fuel efficient vehicles and not hydrocarbon hungry Hummers.
Er, China wants to desperately consolidate its more than 100 (nobody is really sure) automakers to a manageable number. The goal is to merge China’s 14 largest automakers into 10 by 2011, and let the others fade away. A new entry, and one that is supposedly owned by a mining baron is all they need.
Reports appeared in the financial magazine Caijing and state-run newspapers. They say a mining tycoon, Suolang Duoji, who is also known by the Chinese name Li Yan, was behind the deal. Suolang Duoji owns a big stake in Sichuan Tengzhong. He also is the controlling shareholder and chairman of Lumena Resources Corp., a mining company and the world’s second largest producer of mirabilite, a chemical used in washing powder and pharmaceuticals.
“A new entrant in the car industry is not something they’re looking to see,” said Chip Chaikin, who helps oversee $800 million as managing director of Shanghai-based Blue Point Capital Partners Asia. “It’s pretty unlikely” the deal will get approved.
If the purchase is more than $100 million, the deal needs to be approved by the central government. If it is below $100 million, a permit from the provincial government is required. Sichuan province probably will look more kindly at the deal than Beijing. This may explain the $80 million Hummer is supposedly worth. But then, the State Administration of Foreign Exchange also looks at all overseas investments by Chinese companies.
State-owned Shanghai Securities News says outright that China is unlikely to approve the Hummer deal. The government is encouraging companies to buy overseas parts makers rather than automakers, says the paper. Shanghai Securities News belongs to the state-controlled Xinhua News Agency. They usually don’t write these things unless there was a nod from above.
There is another way the deal can be blocked. If Tengzhong needs to raise funds from Chinese lenders, their regulator may tell them that it’s too risky. “The government will step in if Tengzhong wants to fund the deal with loans from domestic banks,” said Yale Zhang, a director at CSM Asia in Shanghai.
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