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19.09.2009

WSJ: Goldman Sachs PE Fund To Invest About $250 Million in Geely Unit

By Rick Carew and Norihiko Shirouzu Of THE WALL STREET JOURNAL

By Rick Carew and Norihiko Shirouzu Of THE WALL STREET JOURNAL

A Goldman Sachs Group Inc. (GS) -managed private equity fund is investing about $250 million in Geely Holding Group's Hong Kong-listed arm to fund the auto maker's growth ambitions, according to a person familiar with the matter.

Geely Automobile Holdings Ltd. (0175.HK) is expected to announce the investment by Goldman Sachs Capital Partners on Monday, a Geely executive said.

The Goldman Sachs fund is investing in convertible bonds and warrants that will give its funds a minority stake in the Chinese auto maker, according to the person familiar with the matter. The size of the stake was unclear. The listed arm has a market capitalization of about US$1.68 billion, according to FactSet Research Systems Inc., a research firm.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

Geely said Wednesday that it planned to issue convertible bonds and warrants without naming Goldman Sachs Capital Partners as the buyer.

The Hong Hong-listed Geely arm plans to use the money to fund its working capital as it expands. That could free up capital for its parent to bid for Ford Motor Co.'s (F) Volvo unit.

People familiar with the matter have said Ford was likely to pick Geely Holding soon to take over Volvo - a sign of its global ambitions. Geely Auto confirmed earlier this month that its parent was bidding for Volvo with an unnamed state-owned investment company.

International investors have in recent months backed major Chinese auto makers, betting they may become global champions. The auto makers are looking to survive a possible wave of consolidation in China's domestic market by snatching up smaller players at home and buying into distressed brands overseas in order to expand sales both domestically and outside the country.

A unit of Warren Buffett's Berkshire Hathaway Inc. (BRKA) agreed last year to pay about $230 million for a 9.9% stake in electric car maker BYD Co. Earlier this year, Chery Automobile Co. secured backing from yuan-denominated private-equity funds managed by CDH Investments and Bohai Industrial Investment Fund Management Co.

Hangzhou-based Geely has made substantial improvement in the engineering and quality of its vehicles since 2006 under Frank Zhao, the company's product development director, who joined Geely from the U.S. auto maker now known as Chrysler Group LLC via a separate Chinese auto maker.

-By Rick Carew, The Wall Street Journal; 86-106588-5848

-By Norihiko Shirouzu of The Wall Street Journal

-Ellen Zhu in Shanghai contributed to this article.

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