Sources Say GM Stock Offering to Reduce U.S. Stake, Generate New Capital

General Motors’ anticipated public stock sale will probably leave the United States government with a minority share in the company while also generating new capital for the carmaker, sources briefed on the tentative plans said.

The United States Treasury, which holds a 60.8-percent stake in General Motors after the $50 billion bailout in 2009, hopes to sell roughly 20 percent of its stock during the public sale, two sources close to the matter reported.

After the sale, the government would have only a 49-percent share in GM before taking into account the additional dilution from the issuance of new shares of GM.

The emerging parameters of General Motors’ planned initial public offering are anticipated to command interest among prospective investors and analysts who will meet in suburban Detroit today for the first financial presentation from the carmaker’s new team of executives led by Ed Whitacre, GM CEO.

GM is thinking about issuing new capital in the IPO, slowly paying down the single liability on its balance sheet that the taxpayer-funded restructuring did not address—a $27 billion gap in its pension fund, the sources reported.

The healthcare trust for retirees, associated with the UAW but maintained independently, also intends to sell a portion of its 17.5 percent share in GM to generate cash and diversify its portfolio, according to the sources. The health-care trust is the second-largest shareholder in General Motors after the federal government.

Looking beyond the Books

At the financial presentation today, General Motors plans to discuss how a healthier balance sheet resulting from bankruptcy has enabled it to break even in spite of drastically lower sales in the United States, how it intends to expand more in rapidly growing markets in China, and how it will tackle other issues, such as financing the restructuring of the money-hemorrhaging Opel, GM’s European unit.

Mirko Mikelic, a portfolio manager at Grand Rapids’ Fifth Third Bank, predicted that General Motors would face tough questions about the dangerous possibility of a return to recession in the U.S.

“There's concern about a double dip out there. That's probably the biggest thing that's weighing over GM coming to the market because that's going to keep (auto sales) down for another year or two," he noted.

United States sales across the auto industry have remained steady in the first half of 2010 above 11 million vehicles on a yearly basis but have not demonstrated the recovery signs that carmakers, GM included, had planned to see.