From the WSJ "Heard on the Street" column today
Goldman Gears Up in China
Chinese car maker Geely Automobile wants to be taken seriously. It now has one seal of approval: Goldman Sachs Group's private-equity arm is investing $245 million through a convertible bond.
Geely will use the money to expand in China as it continues to reinvent its image. Its current reputation is of a company producing cheap, unreliable -- and sometimes eccentric -- vehicles. At the Shanghai auto show it unveiled a Rolls-Royce look-alike with only one passenger seat.
This has left it trailing a frothy Chinese market. Its sales this year were up 22% by the end of August, far behind the sector's 32%, JDPower figures show. The company is 10th in China, with a 2.9% share -- hence its multiple of 11.5 times expected earnings, even after Wednesday's 19% stock jump. Rival BYD, with Warren Buffett's backing and a hopeful future in electric cars, trades at 65.2 times.
Geely's investment in research and development and recruitment of overseas executives seem to be paying off, with better feedback on its pipeline of models. The next planned step could be bidding for Sweden's Volvo through Geely Holdings, Geely Auto's unlisted parent.
But Volvo would be a big bite, given Geely's small acquisitions to date and the challenges of cross-border auto deals. While Goldman is betting on a red-hot market, Geely still has to prove it can put the money to good use.
(I closed on a small transaction with Goldman Sachs where I needed a counterparty to protect a position in a completely unrelated matter. They were consummate professionals, their pricing was very good--it was much better than the street, and it was a very quick and clean transaction. I was pleasantly surprised. So I'm highlighting Geely again--It's a trade that has Goldman's backing.)