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Geely taps China banks to back $1.8 billion Volvo deal

Geely, the Chinese carmaker picked as the preferred bidder for Ford Motor's Volvo unit, is seeking at least $1 billion in loans from Chinese banks to finance its $1.8 billion bid, sources said on Tuesday.  

Home-grown Geely, which means "lucky" in Chinese, is hungry for modern and innovative technologies from the Swedish brand to upgrade its cars and tap the auto market in China, the biggest in the world.

At least three major Chinese banks including Bank of China, China Construction Bank and Export-Import Bank of China had agreed to extend loans to Zhejiang Geely Holding Group, said the banking sources briefed on the plan.

“Money is not a problem for Geely,” said a source. “They definitely have strong support from Chinese banks and there are a number of private equity funds queuing up to invest in Geely.”

Export-Import Bank of China is a policy lender wholly owned by the Chinese government and directly led by the cabinet. Bank of China is China's top foreign exchange lender. China Construction Bank is the country's No.1 property lender.

Last month, Volvo's union leaders held their first talks with Geely but were still waiting to see Geely's financing plans for the loss-making Swedish carmaker.

Geely declined to comment. All three Chinese banks involved declined to immediately comment on the matter.

 

ALL CHINA FUNDS?

 

Global carmakers such as Volkswagen and General Motors GM.UL are stepping up their presence in China, where Geely sells models such as the Free Cruiser and Geely Kingkong.

Helped by government subsidies, the Chinese car market overtook the United States as the world's largest earlier this year. China has plenty of room to promote cars sales further in 2010, a senior Chinese government official said on Tuesday.

The loans backing Geely's bid for Volvo are expected to have a five-year tenor, said another of the sources, who declined to be identified as they were not authorized to speak to the media.

Currently, no foreign banks are involved but it is possible Geely may tap one or two foreign banks for some lending contributions in an effort to downplay Western concerns that financing is largely dependent on Beijing, said the sources.

Standard Chartered and HSBC Holdings Plc are Geely's principle banks, according to its annual report.

Bohai Industrial Investment Fund, a private equity fund backed by the Chinese government, was also in talks with Zhejiang Geely Holding Group, the parent of Hong Kong-listed Geely Automobile, to support its bid for Volvo, said the sources.

However, no agreement between Bohai and Geely had been reached and Bohai's investment would only be a small part of Geely's acquisition of Volvo, said the sources.

There were also some other China-focused private equity funds in talks with Geely about financing, said one source, declining to elaborate.

In September, Goldman Sachs invested $334 million in Geely Automobile, although Geely said Goldman's money would mainly support its domestic car plant expansion.

Ford and Geely have not disclosed a possible sale price for the Volvo deal yet but media reports had put it closer to $2 billion than the $6.45 billion Ford paid for Volvo in 1999. (Reuters)