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Chinese car distributor comes to Saab’s rescue

China's largest listed car distributor has come to the rescue of Saab in a deal worth as much as 110 million euros, staving off the collapse of one of Sweden's best-known brands.
/ Source: Reuters

China's largest listed car distributor has come to the rescue of Saab in a deal worth as much as 110 million euros, staving off the collapse of one of Sweden's best-known brands.

Spyker Cars, the Dutch owner of Saab, announced a deal with China's Pangda Automobile Trade Co Ltd on Monday which it said would secure Saab's medium-term funding needs and allow production to resume within days.

Saab will immediately receive 30 million euros from Pangda for vehicles destined for sale in China, allowing it to repay suppliers and restart production soon, CEO Victor Muller said.

The firm's Trollhatten plant has been idle for about six weeks. Parts suppliers ceased deliveries until bills were paid.

"This is a good first step if it can lead to Saab talking to its suppliers about paying its bills," said Svenake Berglie, chief executive of the suppliers organization, FKG.

He said it would take about a week to get negotiations done with suppliers and another week to restart output. Suppliers estimate Saab owes them "hundreds of millions" of crowns to suppliers for car parts, electricity and plant maintenance.

Saab has "a strong product line now but what they need is long-term financial stability," he added.

The deal is the second pact with a Chinese rescuer in as many weeks after a deal with Hawtai Motor Group fell through last week. It could face some of the same problems as Chinese firms need government approval for acquisitions or overseas investments.

Muller, CEO of Spyker and Saab Automobile, said the fact Pangda is a distributor, not a manufacturer, meant it would not need approvals to buy Saab cars for sale in China. Other transactions will however require consents from certain Chinese government agencies, the European Investment Bank, GM and the Swedish National Debt Office.

Spyker shares, initially suspended when the market opened in Amsterdam, surged 14.6 percent to 4.07 euros by 1113 GMT.

Scramble for funds
Amsterdam-listed Spyker bought Saab from General Motors Co a year ago but the loss-making Dutch firm has struggled to turn it around, and scrambled to find new sources of funding in recent weeks in order to restart production.

The latest deal involves an agreement by Pangda to buy Saab vehicles in two tranches. An initial purchase worth 30 million euros is already in train and a further sale worth 15 million euros will follow, Muller told journalists on Monday.

Pangda, which raised raised nearly $1 billion in its initial public offering last month, will also take a 24 percent equity stake in Spyker for a total of 65 million euros, or 4.19 euros per share.

"It still requires a lot of work before this 65 million is in our bank account, to get the permits," Muller said, but "when we have the 65 million euros, it will be enough for the mid-term, or a year."

Muller said Pangda and Spyker will set up a manufacturing joint venture with a third party, as yet undecided, and plan to produce Saab branded vehicles as well as a jointly owned brand. He said it would take two years before production started in China.

"It's still not definite but at least it's a step in the right direction," said Tom Muller, an analyst with Theodoor Gilissen. "Now they can get on with production and try to break even next year."

China partner
Pangda already handles the Toyota, Honda and Subaru brands in China, and is run by Pang Qinghua, a 55-year-old entrepreneur who started his career in a state-owned machinery factory. He ranks 100th on the Forbes list of Chinese billionaires and has a net worth of $1.1 billion.

Chinese car firms need to expand their product ranges at a time when sales at home are expected to slow, after the government withdrew policy incentives that helped elevate the country to the world's top auto market in 2009.

In addition, Pangda is suffering from the fall-out of Japan's devastating earthquake and tsunami which has disrupted supply chains for many of the brands it currently deals with.

"Both parties are confident that this partnership allows Saab Automobile and Pangda to create a strong business, initially in the distribution and subsequently in the manufacturing of Saab vehicles in China," CEO Victor Muller said in a statement.

"Pangda is a forward-looking, profitable and well-capitalized public company that, as the single largest automobile distributor in China, sees enormous potential for our brand in their home market," he added.