Refinancing of Shanghai General Motors Case Synopsis

Case Synopsis Group no: 8

Case undertaken as a part of group project:

The Refinancing of Shanghai General Motors

Shanghai General Motors was founded in 1997 as a joint venture between General Motors and Shanghai Automotive Industry with 50% of ownership with each of them. Shanghai Automotive Industry is 100% owned by Shanghai Municipal Government. The joint venture was capitalized with $700 million of equity injected by the owners and $821 million of debt through the syndicated loan facility from banks. The syndicated loan of $821 million USD was equivalent to : $472 million of long term USD denominated debt provided by foreign and local banks, $267 million USD equivalent long term RMB denominated debt, and $82 million USD equivalent local currency revolving working capital facility provided by local banks. The dollar denominated debt was priced at a floating rate of six month Libor + 105 basis point. The RMB denominated debt was carried at floating rate equal to the People’s Bank Of China rate. After the successful launch of Buick, an upmarket Sedan and GL8 minivan, SGM is looking forward for to launch SAIL, a small car modelled after the Opel Corsa sold in Europe. With the introduction of new product the projected requirement for working capital in the year 2002 would be around $USD 747. However, for the syndicated loan banks have put timeline to withdraw $821 miilion by September 2000. To add on it, the SAIL launch planned in Quarter 2 of 2001 was challenge in funding the project due to the time cap provided by banks.

Questions to be answered Thus in the year 2000 Mark Newman, Chief Financial Office of Shanghai General Motors is contemplating the options 1. To refinance the entire borrowing facilitating SGM or 2. To withdraw all remaining syndicate loan on the existing terms As a part of the case study, we would be analysing above mentioned options to finance Shanghai General Motors.