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Volvo Cars Cancels its Planned IPO Amid Ongoing Trade Tensions

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【Summary】Volvo Cars has postponed its planned IPO, citing ongoing trade tensions and a decline in automotive stocks. The Swedish carmaker, which is owned by China’s Geely, hoped to list its shares by the end of the year.

FutureCar Staff    Sep 10, 2018 12:22 PM PT
Volvo Cars Cancels its Planned IPO Amid Ongoing Trade Tensions
author: FutureCar Staff    

Volvo Cars has postponed its planned IPO, citing ongoing trade tensions and a decline in automotive stocks. The Swedish carmaker, which is owned by China's Geely, hoped to list its shares by the end of the year.

Volvo and Geely had been discussing an IPO to value the carmaker at between $16 billion and $30 billion, sources have previously said. The company said a listing was still possible in the future.

"We've come to the conclusion that the timing is not optimal for an IPO right now," Volvo Chief Executive Hakan Samuelsson said to Reuters on Monday, confirming a decision which was first reported by the Financial Times.

Volvo exports vehicles from China to the U.S. and those plans are no longer viable, as China and the U.S. engage in a tit-for-tat trade war resulting in higher tariffs on both sides, Volvo said. The Trump administration is seeking tariffs up to 25 percent on vehicles built in China then shipped to the U.S.

Volvo produces the S90 sedan and compact XC60 SUV at its Chengdu and Daqing plants in China. About a quarter of the vehicles are exported, with most of the vehicles destined for the U.S. market.

Geely had previously indicated it would not push ahead with an IPO unless it could guarantee a valuation of $30 billion, the FT reported in May. The huge sum would have valued the Swedish carmaker at a higher multiple compared with its profits than either BMW or Mercedes owner Daimler.

However, the Trump administration's trade disputes with Beijing and tensions with Europe have rattled automotive investors, adding volatility to market outlooks, prompting Volvo to push ahead its IPO.

Volvo is less exposed than its German rivals to U.S.-China tariffs, however, and has said it will juggle production of its XC60 SUV to reduce their impact.

"The issues around trade are hard for us because they impact cars shipped between China and the U.S. It's a huge drawback," Samuelsson said. "The risk is that these headwinds will increase."

Geely and its chairman Li Shufu had concluded that Volvo should make deeper inroads into the Chinese market before listing, a person familiar with the matter told Reuters.

In China, Volvo is developing it's high-performance electric brand Polestar and owns a stake in Lynk & Co. Volvo has "other alternatives" to raise finance, Samuelsson said.

The IPO postponement reflects bigger concerns about "price development after a potential IPO" rather than about the initial valuation, the CEO added, citing sensitivities over the prevalence of public pension funds among Swedish investors.

Samuelsson told the Financial Times he was concerned the company's stock price could decline after the float.

"What made me nervous especially was leaving headroom for investors" amid growing market uncertainties, Samuelsson said.

Geely purchased the Volvo Cars from the Ford Motor Co for $1.8 billion in 2010. Earlier this year, Geely purchased a $9 billion stake in Mercedes-Benz parent Daimler.

Also announced today was that Samuelsson has extended his contract with Volvo to 2022 and will remain its CEO as the company transforms.

In a press release Volvo wrote, "The extension provides the company with management continuity as it continues to transform itself into a global and diversified mobility service provider."

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