General Motors Co shares shot up as much as 9 percent on Thursday as investors bet that the top US automaker can make a lasting recovery as it returns to private ownership after a blockbuster IPO. GM shares began trading on the floor of the New York Stock Exchange to the sound of a revving Camaro engine, taking the place of the traditional ringing of the opening bell.
By early afternoon, more than 165 million shares had traded, more than triple the amount of trading in Citigroup Inc, the next most actively traded stock. GM shares also traded on the Toronto Stock Exchange. The start of trading in GM shares is one of the final steps in a initial public offering process negotiated by the Obama administration that raised $20.1 billion in common and preferred shares, making it biggest IPO in US history.
The IPO caps the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008, via a 2009 bailout, to unlikely Wall Street flotation favourite in 2010. A successful stock debut may help the Obama administration argue that the controversial $50 billion taxpayer bailout of GM was worthwhile, analysts have said.
The government has estimated that an industry failure led by a GM collapse would have cost 1 million jobs, including suppliers, and would have reduced US GDP by 1 percent.
GM's strong return boosted Wall Street stocks on Thursday, with the Dow Jones industrial average up 1.6 percent in afternoon trading. "This is bigger than just an IPO. It's an American icon coming back on stream and it is feeding optimism to the stock market," said Bernie McGinn, president of McGinn Investment Management in Alexandria, Virginia.
"It's good for the stock market. It's good for the equities market. It's good for the economy, so it's good for all of us," said Linda Killian, portfolio manager at Renaissance Capital. The GM rescue left the Treasury with a 61 percent stake and the automaker with the embarrassing nickname "Government Motors." After the IPO, the US government sale could drop to 33 percent. The IPO valued GM at about $63 billion. Including a yet-to-be exercised option that allows underwriters to sell more shares depending on demand, GM looks set to raise $23.1 billion, eclipsing the record $22.1 billion raised by Agricultural Bank of China in July.
The team of GM executives led by Chief Executive Dan Akerson that pitched the IPO to investors said they recognised their job in transforming GM was not done. "We have to celebrate on the run here," GM North America President Mark Reuss told Reuters. "It's a big day to become a public company again but we have got to just hit the ball out of the park here every day on product." Chief Financial Officer Chris Liddell said the automaker's goal was to pay down all of its remaining debt and fully fund its pension plan, removing one of the concerns investors had cited heading into the IPO.
"We are in a good position to do that over the next few years," Liddell told Reuters Insider. At $33 a share, the partial sale represents a loss of about $9 billion on taxpayers' original investment, assuming the extra shares go at the same price.
In order to break even for taxpayers on the bailout, the Treasury would have to average near $52 or $53 per share on its remaining stock sales, almost 48 percent above the stock's price on Thursday afternoon. GM shares were up 5.6 percent at $34.86 in midafternoon, off a high at $35.99. Even after raising the IPO price and offering size, underwriters had far more potential investment lined up than the deal could accommodate, sources said.
China's SAIC Motor Corp confirmed on Thursday that it bought a 1 percent stake in GM. The state-run Chinese automaker said it expected its co-operation with GM would broaden to include more technology sharing and "exploration of overseas markets." The reversal in GM sentiment pointed to renewed confidence in an industry that faced collapse before unprecedented government intervention. It also offers hope for others, including smaller automaker Chrysler, looking to tap credit and equity markets in coming months, analysts said.