Our Daily Saab: Dark Clouds Gather Around Saab's White Knight
Pangda, one of Saab’s presumptive white knights, could itself be facing financial difficulties. Both the staid government-owned China Daily and the more outspoken Taiwan-based China Times report strange financial going-ons at PangDa. Says China Times:
“Shareholders and securities analysts are scratching their heads over how a top automobile marketing group in China managed to “burn” a huge fund of 6 billion yuan (US$944 million) in just six months. Many have speculated that Pang Da Automobile Trade Co has shifted to financial leasing services to cope with stalling car sales caused by the government’s credit-tightening regulations.”
According to China Daily, $659 million had been “used to repay bank loans and supplement working capital.” China Times reports a lot of the money as lost and says:
“Corporate executives have dodged the questions about what happened to the capital from the initial IPO fund.”
Further digging revealed:
“The group has been saddled with financial leasing operations exceeding 2 billion yuan (US$314.8 million), although the company did not include this information in its IPO prospectus.”
Even after the record IPO, Pangda finds itself short of funds.To rectify this, a corporate bond issue of nearly $600 million has been approved.
For years, Pangda has operated a successful auto financing operation in the usually credit-adverse China. It is a risky undertaking. In the “Jidong Mode” of car financing, named after the predecessor company of Pangda, the dealer guarantees the bank loan of the car. For years, PangDa has been running a giant Buy here, pay here operation, replete with GPS transmitters in cars, company-own credit enforcers and repossessions. When a customer defaults, PangDa pays off the loan, repossesses the car and sells it to recoup part of the loss. This model worked fine during times of easy money, but those times are over. Says China Times:
“Securities analysts said the newly disclosed financial information means that the business model followed by the company is no longer as effective, as the central government has squeezed credit to fight inflation and dampen speculative real estate purchases.
Growing numbers of enterprises in China have complained of the increasing difficulty of getting bank loans as financial institutions have also found themselves short of funds.”
A lot of these reports are based on an in-depth piece in the printed version of China’s 21st Century Herald, which keeps good relations with the top echelons of the auto industry.
With money getting scarcer by the day, it did not help that Pangda had already written off “bad debts of 45 million euros which were paid to SAAB as the latter may become bankrupt.”
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Block that metaphor!