General Motors revival continues with record $20bn flotation

It's been a remarkable turnaround for General Motors. In June last year, the struggling US carmaker was forced to accept a $50bn bailout from the US government. Fast forward 17 months, and it has just persuaded investors to stump up $20.1bn in what is already the largest IPO in US history (and could end up being the biggest anywhere). Leaner, meaner and newly-profitable, GM is a good advert for the Chapter 11 bankruptcy regime - not to mention the benefits of prompt state intervention (even if it still seems unlikely that the government will get all its money back). But although its success is being hailed as a statement of confidence in the US economy, it also reflects the shift of economic power eastwards...

GM has managed to raise a cool $20.1bn by selling shares at $33 each; that's right at the top end of the offer range, demonstrating just how strong investor demand was. If the ten zillion banks underwriting the issue decide to exercise their over-allotment option over the next month, the final total raised could be more than $23bn - which would make it the biggest IPO ever (beating the current record holder, the Agricultural Bank of China). This will allow the US government to reduce its stake from 61% to around 33%, raising over $13bn in the process. That's a nice windfall, although it would need to sell the rest of its shares at over $50 each just to get its original investment back - a big jump from the current valuation. So they're unlikely to be dancing in the aisles at the Fed.

Of course, the reason this IPO has done so well is that GM has a good story to tell. It's a totally different beast from the ailing behemoth that stumbled into Chapter 11 17 months ago - it halved its debt pile, overhauled its management and slashed its costs by closing dealerships, slashing jobs and cutting a deal with unions over pay. Also, significantly, it seems to have got back to making cars that people actually want to buy. As a result, it's expecting to make a profit this year for the first time since 2004 (having already chalked up $5bn in the first nine months of the year). And it's the Chapter 11 regime that has allowed it to make such big changes so quickly; grist to the mill for those who favour the introduction of a similar regime here in the UK.

But it’s debatable whether GM’s IPO success really represents a ringing endorsement of the US economic recovery. For a start, the speed of its turnaround is largely thanks to China, where its joint venture with SAIC Motor almost tripled profits to $734m in the first half of 2010; it now sells more cars in China than it does in the US. And many of the investors rushing to get a piece of the IPO action are apparently eastern sovereign wealth funds attracted by GM's growth prospects in the region. So although it’s good to see this famous US institution back on its feet, the company will have a much more eastern feel and focus from here on in.