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Chinese billionaire Li Shufu has made a habit of shuffling around the pieces of his sprawling empire to find the best value. Yet none of that grand strategising has addressed his main problem: a growing pile of debt.
Every few months, Zhejiang Geely Holding Group Co, the parent company of Hong Kong-listed Geely
Automobile Holdings Ltd and Sweden’s Volvo Car
AB, comes up with yet another plan for its various subsidiaries.
Whether it’s listing them on public markets or monetising assets, creating new brands to boost valuations or merging various parts and units, the goal, it seems, is often the same: shifting value from one corner to another, and maximising the efficiency of all the capital that’s being put to work.
At this point, most investors have gotten used to these maneuvers, and it isn’t hard to see Li’s motivation. Volvo, his crown jewel, is heading toward an initial public offering by the end of this year that could value the business at around $20 billion. That figure has been a touchy point, and plans for a listing fell through in 2018 because Li and investors couldn’t see eye-to-eye.
But shareholders would do well to look beyond those efforts, and pay attention to the constant tinkering. Those moves will weigh on prospects if Li doesn’t pay down debt at the parent-company level.
In July, Volvo agreed to take control of its part-owned research and
development centre and manufacturing operations in China from Zhejiang Geely. That came after the companies shelved a plan to merge Geely Automobile and Volvo, which was supposed to help streamline capital spending and production costs. They then carved out a new unit — Aurobay, jointly owned with Zhejiang Geely — to merge internal-combustion-engine operations. The company would become a global supplier of powertrains.
In the same month, Volvo said it intends to raise its stake in electric car performance brand Polestar.
The investment in Polestar increased in value as a private placement triggered a valuation effect of 2.0 billion Swedish kronor ($239 million) for Volvo. Bloomberg News reported that Polestar was in talks to go public through a blank-check firm, a SPAC, that could value the combined company at $25 billion.
In January, Zhejiang Geely had divested of its holdings in Polestar and converted it into a wholly-owned subsidiary of Volvo Cars (China) Investment Co.
The common factor in all of this is a reliance on Volvo, Zhejiang Geely’s cash cow. In the years since Li bought the Swedish automaker from Ford Motor Co, he has managed to turn the struggling company around.
—Bloomberg