SAIC Motor Corp would give up its majority ownership in a car joint venture with General Motors as long as Shanghai GM’s revenue can still be included in its books, two people familiar with the matter have said.
Under Chinese accounting rules that came into effect in 2010, a subsidiary’s revenue can be reflected in the books of the parent only if the parent is the majority shareholder, Reuters noted. That means that if SAIC, now with a 51% stake in Shanghai GM, cannot show it has control in one form or another, the revenue generated by the venture cannot be counted as part of its overall revenue.
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“That’s a very important issue for SAIC. It had made it clear to GM that it would have no problem to let go the 1% stake as long as Shanghai GM’s revenues can be still be fully reflected in its own financial results,” one person with knowledge of the talks told Reuters.
Shanghai GM had previously been a 50-50 partnership.
In a deal the two sides signed in 2009 when GM was trying to raise cash to avoid bankruptcy, there was an option allowing GM to buy back the 1% stake in the venture it sold to SAIC for US$85m.
Although both automakers have said the terms of their collaboration have not changed, SAIC now ranks as the majority shareholder in the China joint-venture with a 51% holding.
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By GlobalDataEarly in the month, GM chief executive Daniel Akerson said his company had told its partner it wanted to buy back the stake as agreed.
GM said in a statement sent to Reuters that both parties were interested in completing the transfer, however, there was no specific timeframe or deadline for the transaction.
Akerson said he expected to close the deal after SAIC completes an internal asset restructuring.
A SAIC spokeswoman told Reuters buy-back discussions between the two sides had started even before the 2009 deal was signed and the Chinese automaker has been seeking a solution that was beneficial to both sides.
“A stake buyback is important for GM and so is the technical issue for SAIC. They understand each other’s position very well but just need to work out something acceptable to both,” another person briefed on the matter said.
One possible option would be to incorporate a sales company for Shanghai GM that would be majority-held by SAIC, but GM might find that unacceptable, one analyst told Reuters.
SAIC was an investor in GM’s November 2010 initial public offering, taking a 1 percent stake in the Detroit-based automaker as it returned as a listed company after its 2009 bankruptcy.
Detroit News backgrounder to that 1% stake
