China Investors Question Geely's Post-Volvo Cash Position

Just the Facts:

• Geely says it has $3.2 billion in cash and will boost total assets to $17 billion this year.
• The automaker said combined revenues this year, including Volvo, should top $23 billion.
• After last year's acquisition of Volvo, Geely's debt ballooned from $2.5 billion to $11 billion.

SHANGHAI, China — Chinese automaker Geely Automobile this week hastened to assure investors that it has sufficient resources to meet its financial obligations, even after its debt ballooned from $2.5 billion to $11 billion following last year's acquisition of Volvo Cars.

Chinese investors also may be concerned by the lingering cash crisis at another Swedish automaker, Saab, which is in the process of selling a controlling interest to several Chinese auto companies, but this week said it could not meet payroll because it was out of money. Last week, Saab said it would extend its production shutdown at least through the end of August, until it can get money from its new investors to help pay suppliers.

Geely meanwhile sought to assure investors that it is still financially well-positioned despite the purchase of Volvo.

Geely spokesman Yang Xueliang on Tuesday said China's largest privately run carmaker, which paid $1.8 billion for Volvo, had combined monetary assets of $3.2 billion at the end of 2010. Yang said the group will boost its total assets to $17 billion this year, and expects combined sales revenue of up to $23 billion, including Volvo.

"We managed to increase the monetary assets in the first half of this year, and the group still enjoys good solvency," Yang said.

His remarks came after Chinese media reports said the group is facing financial pressure after its total debt surged to $11 billion by the end of last year, four times the company's $2.5-billion debt in 2009 before it bought Volvo.

"Turning around Volvo needs a lot of money," said Xu Caihua, an analyst at Guodu Securities Co. "Together with slower vehicle sales growth in the Chinese market, Geely is still exposed to additional financial risks in the long term."

Inside Line says: Volvo appears to be considerably better positioned for the future than its Swedish counterpart.