IHS Global Insight Perspective | |
Significance | Saab's parent company Swedish Automobile has announced that further progress has been made on agreements with its potential future Chinese partners, as well having had its property lease back deal being approved by the European Investment Bank (EIB). |
Implications | Saab has been able to raise EUR66 million in short-term liquidity during the past week, which has been enough to pay its bills and should enable it to restart production. |
Outlook | While the potential Chinese investors still have faith in the company, it remains to be seen whether they will gain approval from various bodies, including the Chinese government. |
Saab's parent company, Swedish Automobile (formerly Spyker Cars), has announced news putting the future of the automaker in a more positive light than just two weeks ago. Yesterday (4 July), the company revealed that it had signed final agreements with Chinese dealer group PangDa and Chinese automaker Zhejiang Youngman Lotus Automobile Co. (Youngman), which will convert the non-binding memorandum of understanding (MoU) signed last month (see Sweden: 14 June 2011: Saab Signs MoU for Production and Distribution JV with Youngman Auto and PangDa) into a binding agreement. The binding agreement confirms the infusion of EUR245 million (USD356.1 million) into Swedish Automobile by PangDa and Youngman. The parties are also continuing to work towards the execution of binding agreements for a strategic alliance consisting of a tripartite distribution joint venture (JV) and a tripartite manufacturing JV for Saab-branded and "child brand" vehicles in China.
The company also announced the conditional formation of a Sweden-based 50:50 JV—New Product Joint Venture—which will develop three new models. According to Swedish Automobile, this will underpin the expansion of Saab's model range beyond its current and already announced portfolio. The vehicles are tentatively known as 9-1, 9-6X and 9-7. It added that Saab will control and manage the design, development and testing of the new vehicles, as well as providing technical and quality control support through its base in Trollhättan, while Youngman will provide the necessary financial support for the JV. The chief executive officer (CEO) of Youngman, Pang Qingnian said in a statement, "The agreement on the New Product Joint Venture brings together the best of both worlds, merging the industrial and financial strength of Youngman Passenger Car with the state-of-the-art technical expertise of Saab Automobile. The Saab '9-6X' and Saab '9-7' will be key to enhancing the prestige of the Saab brand to an even larger group of customers in China and the US, while the entry level Saab '9-1' will appeal to urban motorists around the globe."
The company added that the agreements are subject to approval from relevant government authorities and approvals from third parties. However, it added that these agreements allow for Russian businessman Vladimir Antonov becoming a shareholder and financier of Swedish Automobile and Saab Automobile, a development that is expected as soon as his involvement has been approved.
On the same day, Swedish Automobile received approval from the European Investment Bank (EIB) to undertake a sale and lease-back arrangement relating to Saab's property. EIB spokesperson Par Isaksson told Associated Press Newswires that the bank approved the agreement to sell a 50.1% stake in Saab's property, including its production plant in Trollhättan (Sweden) to Swedish real estate company Hemfosa and other partners.
Outlook and Implications
The future of Saab now looks less bleak than it did just a week ago. During this time it has announced a further deal to supply cars to the Chinese market to an unnamed local company (see China - Sweden: 27 June 2011: Saab Announces Lifeline Vehicle Order from China; Lease-Back Deal Complex, Says Property Company CEO), a bridging loan from investor hedge fund and existing shareholder Gemini Investment Fund (see Sweden: 30 June 2011: Saab Secures EUR25-Mil. Bridging Loan, Hopes to Restart Production Within Two Weeks) and finally the sale and lease-back deal that has now been approved. With these three moves, Saab has secured EUR66 million in short-term liquidity, which has not only been enough to pay its staff but also to strike a deal to restart supplies of components and resume production.
There appears to be greater hope for the longer-term future of the business as well. Despite the problems in recent weeks, the potential Chinese investors have not lost faith in the company, and the signing of this deal underlines this. As well as the possible benefits of the infusion of capital and opportunities stemming from manufacturing and distribution in China, their involvement seems set to provide Saab with a broader product line-up as well, which would support volume levels as well. However, in order for these deals to take place, the deals will need to be approved by the relevant authorities. The most notable potential problems are likely to be associated with the Chinese government, and particularly the National Development and Reform Commission (NDRC), as officials have already voiced concerns over overcapacity in the market in the wake of slowing growth. Although there has been some suggestion that the partners believe approval could be received in just a few months, the NDRC has no timetable for giving verdicts on JVs, and as a result it could become stuck in an administrative black hole. The question for now has to be whether Swedish Automobile and Saab received enough in the way of bridging financing and can generate enough cash flow to see it through this time.