Saab Rescue Gets New Life With Bank of China Role

By newsdoug on December 6, 2011

Bank of China gives Saab rescue plan new life The never-ending saga of a plan by 2 obscure Chinese firms to rescue dying Swedish automaker Saab has taken an interesting twist, with foreign media reporting that one of the Chinese partners has dropped out of the rescue group and been replaced by banking heavyweight Bank of China (HKEx: 3988; Shanghai: 601988). Under the original plan that stood little or no chance of success (previous post), the 2 Chinese firms, Youngman Lotus Automobile and Pangda Automobile (Shanghai: 601258), had been working for months on securing hundreds of millions of dollars in financing to rescue Saab, even as the Swedish company’s former owner, GM (NYSE: GM), was threatening to veto such a deal. I had said that even Youngman and Pangda could secure the necessary funding, their plan would ultimately get vetoed by Beijing due to inexperience of the 2 Chinese companies and Saab’s highly complex situation. But now the exit of Pangda and entry of Bank of China has completely changed the complexion of this rescue plan, and indicates that someone in Beijing may actually want to see the deal succeed. Foreign media say that under the deal now being discussed, Bank of China would replace Pangda, and collectively with Youngman would own just under 50 percent of Saab after providing their rescue financing. (English article) This new deal contains two elements lacking in the previous deal, giving it a much higher chance of success. From a financing standpoint, Bank of China’s participation guarantees the availability of needed funds, which are likely to run in the hundreds of millions of dollars. But perhaps more important, the participation of well-connected Bank of China gives the deal a much better chance of winning necessary government approval. Clearly Beijing has taken an interest in this deal, though I’m not sure why as Saab still has many structural issues that GM and others with much more experience failed to solve. Perhaps Beijing is just interested in Saab’s intellectual property, following the purchase 2 years ago of several older Saab model designs by Beijing automaker BAIC. Regardless of the reasoning, this latest rescue package looks to have a much better chance of success, meaning Saab may yet survive to see at least the end of 2012.

Bottom line: A Chinese plan to save Swedish automaker Saab stands a much better chance of success following the new entry of Bank of China into the rescue partnership.

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