Investor Demand High for GM IPO

Since General Motors put word out that it was planning an initial public offering (IPO) the response from eager investors has resulted in a revision of the original IPO figure and, starting Thursday November 18, GM will be offering $4.6 billion worth of preferred shares, as well as 478 million common shares which should fetch between $32 and $33 per share. This move will go down in US stock market history as the largest IPO on record, even if preferred shares are taken out of the equation.

Back in the third quarter of 2008, General Motors went cap in hand to US authorities seeking bailout funds to save them from financial ruin, and after a number of proposals and counter-proposals, the Treasury agreed to a $50 billion bailout in exchange for 60.8 percent of GM’s common shares. The company filed for court protection in June 2009, GM restructured and started slowly regaining investor trust that had been shattered by its fall from grace.

The majority of the shares being sold originate from the US Treasury’s majority stake of 60.8 percent, thereby reducing its shareholding in GM to a third. Nonetheless, the US Treasury will remain as GM’s largest shareholder. So, when adding up the repurchase of Treasury-held preferred shares, the current IPO, and the repayments that have already been made, GM’s remaining debt to the Treasury stands at $28 billion.

There was a time that General Motor’s shares were considered to be an essential element of an investor’s portfolio. The financial crisis that has gripped the US, and most of the rest of the world, for the past two years or more brought sharply into focus that there is no such thing as “too big to fail”. However, judging by the level of investor enthusiasm generated by GM’s latest step in its recovery program, it looks very likely that GM shares will regain its foothold as being essential in a balanced investment portfolio.