DealZone

Money no problem for Geely’s Volvo bid

Goldman Sachs has been known to pick a few winners in its day. The $334 million it plunked into the Chinese automaker Geely in September may prove to be one of its craftiest bets.

Geely, picked as the preferred bidder for Ford’s Volvo unit, is seeking at least $1 billion in loans from Chinese banks to finance a $1.8 billion bid, sources say.

Geely means “lucky” in Chinese. But with the bankers it has lined up, the company probably doesn’t need much in the way of luck. Bank of China, China Construction Bank and Export-Import Bank of China have agreed to extend it loans, our sources tell us. That’s about as mighty a banking syndicate as you can get in the People’s Republic.

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

Then there is the near-perfect timing for a Chinese automaker, looking for a technology upgrade on the cheap, to be shopping for one of the best known premium brands in the industry. Though Ford and Geely have not disclosed a possible sale price for Volvo, reports suggest it will be much closer to $2 billion than the $6.45 billion Ford paid for Volvo in 1999.

BAC to the Future

Now that the dark days of TARP force-feedings, congressional hearings and ill-conceived mergers are behind it, Bank of America is getting back to the business of expanding in the world’s most enduring pot of fabled gold, China. The bank sent a memo around saying it had rehired a China hand to head its corporate finance business there.

Wang Bing, who worked for Merrill Lynch between 2004 and 2008 in various management roles, including dealmaking in China, is back with Bank of America-Merrill Lynch as a managing director, according to the memo. On Thursday, we reported that Bank of America plans to set up a wholly owned subsidiary in China to bolster its corporate, investment banking and wealth management businesses.

In May, Bank of America sold $7.3 billion worth of shares in China Construction Bank. It needed the cash, so turning its back on such a long-term position made sense at the time. The news this week is hardly as dramatic, in scope or in value, but it is significant. If nothing else, it shows the bank trying to get back to the business of anticipating global growth. It will be interesting to see if the bank is any more effective at growing in China as a local business rather than as a partner with big, Beijing-favored China Construction Bank.

Temasek’s long China play gets short U.S.

TEMASEK/Singapore investment vehicle Temasek cut its losses in Bank of America and ran in the first quarter, dumping a 3 percent stake, for which it took a $3 billion hair cut. Having watched its relatively high-risk investment in Merrill Lynch turn to dust, the Singapore state agency turned to firmer ground: China.

Temasek was among the investors to gobble up a stake in China Construction Bank that Bank of America sold earlier this week as it further drew in its horns from the global recovery story. Sources say the move fits with Temasek’s focus on global companies that aim to grow in Asia, noting that Bank of America is losing whatever global allure it may have bought along with Merrill’s bad assets. Getting a “gentleman’s C” in the stress test doesn’t inspire much confidence either.

However bad things get for Bank of America, it’s hard to dispel the ghosts of China’s policy banking bedrock. Though they will tell you they have been shedding dud assets from their balance sheets for years, nobody is under any illusions about either transparency or solvency of the People’s banking system. That’s not to say such investments won’t pay off. After all, as the axiom goes, no risk, no gain.

Bank of America’s stalwart position in China

FINANCIAL-BANKOFAMERICA/Ordered by the federal government to find $33.9 billion of capital, Bank of America‘s Ken Lewis seemed to be acting the part of the visionary global business hawk yesterday when he detailed plans to retain a large stake in China Construction Bank. “It’s a strategic partner, and we always want to have a very large ownership position,” Lewis said on a conference call hosted by Calyon Securities.

A few hours later, the bank sold a block of 13.5 billion CCB shares for $7.3 billion, according to a source directly involved in the deal. A lock-up period on the block expired last Thursday. The rest of the bank’s CCB stake — about 10.6 percent — is still locked up, and will be until Aug. 29, 2011.

The China investment may be a great long-term opportunity, but Bank of America is facing severe short-term pressure to raise funds, so a lesser Lewis might have admitted he would have sold more if he could have, but his hands were tied. While no doubt making money on the initial investments it made in 2005, Bank of America has been unloading its CCB stake at a discount to market prices since January.