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GM details plans to wipe out current shareholders

GENERAL Motors Corp yesterday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the US government, bondholders and the United Auto Workers union.

The unusual plan, which was detailed in a filing with US securities regulators, would only need the approval of the US Treasury to proceed since the US government would be the majority shareholder of a new GM, the company said.

The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy.

The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM's stock investors with just 1 percent of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader US economy.

GM shares closed yesterday at US$1.85 on the New York Stock Exchange. The stock would be worth just over 1 cent if the first phase of GM's restructuring moves forward as described.

Once GM has issued new shares to pay off its debt to the US government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split.

Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM's existing shareholders would see their stake in the 100-year-old automaker all but wiped out.

The automaker said it expected to draw another US$2.6 billion from the US Treasury before a June 1 deadline set by the Obama administration for it to reach agreements with all of its key stakeholders.

That borrowing would take GM's debt to the US government to US$18 billion, and the automaker said it expected to have to borrow a total of nearly US$27 billion.

GM has asked its three major creditor groups to write off at least US$43 billion in debt in exchange for ownership of a restructured company.

By contrast, the current market value of GM's current 610 million shares is about US$1.7 billion.

The stock has lost about 43 percent of its value since the start of the year.

GM bondholders, who are owed US$27 billion, have also been offered new stock in exchange for writing off debt in a bond exchange the automaker launched last week.

The automaker is targeting a debt-reduction of at least US$24 billion of its bond debt under the plan and has warned that it could be forced into bankruptcy if that cannot be achieved.

Representatives of GM bondholders, who would be given a 10-percent stake in the new company under the automaker's restructuring, have said they are being offered an unfairly low payout. They have asked instead for a majority stake in the restructured company.

But GM has asked the US autos task force to accept a majority stake in a new GM in exchange for at least half of the government debt that the automaker has run up over the past four months.

Chief Executive Fritz Henderson said yesterday that the US Treasury, which oversees the task force, was continuing to evaluate the company's restructuring plan and its progress.

"The Treasury will continue their evaluation through the month, which is fine. But we're not waiting, we're implementing. The bond exchange needed to be launched when we launched it," Henderson said. "Now we'll have to see."

In its filing, GM said it was in "ongoing discussions" with the US Treasury on its proposal to swap government debt for equity in the largest US automaker.

Finally, GM is negotiating with the UAW and is seeking to get the union to take GM stock in exchange for US$10 billion owed to a trust fund for retiree healthcare.

Those talks were set to resume this week in Detroit, Henderson said.

GM said in its SEC filing that its three-pronged effort to slash debt could take its total authorized share issuance -- including new and existing shares -- to 62 billion shares.


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