Volvo IPO: Geely tie underpins worth amid east-west tensions

Volvos have a reputation for getting you there safely rather than quickly. Unusually, the Swedish group intends to outdo opponents by taking full control of Chinese joint ventures.

The agreement would make Volvo, which is itself Chinese-owned, the first foreign petrol manufacturer to have a business in China. The agreement suggests that an expected initial public offering may not be far behind.

The cold weather maker plans to take over the remaining 50 percent of the two joint ventures from the Geely group. Beijing has banned foreign carmakers from owning more than 50 percent of any joint venture for nearly three decades.

The limit has already been lifted for electric car manufacturers. Gasoline-powered carmakers follow next year. Similar purchases by foreign competitors should become commonplace in January.

Volvo’s early announcement of an agreement indicates that the decks for a listing on the Nasdaq Stockholm Stock Exchange will be cleared. The IPO is expected to amount to about $ 20 billion for Volvo.

By simplifying the relationship with the Geely group, it will be easier to attract investors. Volvo desperately needs the listing to succeed. The group has become relatively sluggish with electric vehicles, with its first pure electric model arriving late last year. The investment must remain high.

Competitors enjoy size advantages that are reflected in sales and valuation. Volvo’s free cash flow almost halved last year to SKR 17 billion ($ 2 billion). Its increased market value would be less than half that of Ford and Honda.

Some European investors will see the continued association with the majority owner Zhejiang Geely as problematic. East-west relations are strained and China imposed sanctions on European politicians and entities in March.

The reality is that Volvo can not do without Geely, which once saved it goes from below. The Swedish group’s record profit in the first half reflects strong sales in China, assisted by its parent. Volvo also relies on Geely to develop electrical and self-propelled technologies and deliver inexpensive components.

Volvo’s valuation is supported by the relationship – or thereby undermined as friction between China and Europe worsens.

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