New York - General Motors Co shares traded up 7% on Thursday morning, in a dramatic market return for the top U.S. automaker that comes less than a year and half after it emerged from a government-funded bankruptcy.
The shares opened at $35, above the initial public offering price of $33 and rose as high as $35.99 in early trading.
GM shares began trading on the New York and Toronto stock exchanges with the rev of a Camaro engine on the floor of the New York Stock Exchange taking the place of the traditional ringing of the bell.
The start of trading in GM shares represents the last step in a blockbuster initial public offering negotiated by the Obama administration that raised $20.1bn after pricing the automaker's shares at $33 each.
The IPO caps the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008, via a 2009 bailout, to unlikely Wall Street flotation favorite in 2010.
Obama administration officials said the strong market debut for GM showed they made the right choice in restructuring the auto maker with $50bn in financing.
"This is a bit better than people had been projecting. As to a year ago. it's not even in the same ballpark," Ron Bloom, the U.S. Treasury official in charge of the GM investment told Reuters Insider. "A year ago, people said 'you have no exit, you have no strategy. This company is not fixed.'"
The GM rescue left the Treasury with a 61% stake and the automaker with the embarrassing nickname "Government Motors." After the IPO, the US government sale could drop to 33%.
The IPO values GM at about $63bn. Including an option that would allow underwriters to sell more shares, GM looks set to raise $23.1bn, eclipsing the record $22.1bn raised by Agricultural Bank of China in July.
The team of GM executives led by Chief Executive Dan Akerson that pitched the IPO to investors said they recognized their job in transforming GM was not done.
"We have to celebrate on the run here," GM North America President Mark Reuss told Reuters. "It's a big day to become a public company again but we have got to just hit the ball out of the park here every day on product."
Chief Financial Officer Chris Liddell said the automaker's goal was to pay down all of its remaining debt and fully fund its pension plan, removing one of the concerns investors had cited heading into the IPO.
"We are in a good position to do that over the next few years," Liddell told Reuters Insider.
At $33 a share, the partial sale represents a loss of about $9bn on taxpayers' original investment, assuming the extra shares go at the same price.
In Europe, the IPO news pushed auto stocks higher.
"It's absolutely remarkable how the sentiment has totally changed over such a short time period, said trader Stefan de Schutter of Alpha Trading brokerage said.
In Tokyo, Fumiyuki Nakanishi, a manager at SMBC Friend Securities, struck a note of caution for Japanese rivals.
"If global funds add GM as a core stock in the automotive sector, there's a chance that its Japanese peers, though I'm not sure which one, will be pushed out," he said.indicative grey market price for GM was $37-37.50, a gain of as much as 13.6 percent.
Even after raising the IPO price and offering size, underwriters had far more potential investment lined up than the deal could accommodate, sources said.
Sovereign wealth funds in the Middle East and Asia and other large international investors will account for less than 5% of the total GM offering including common and preferred shares and the overallotments, a source said.
China's SAIC Motor Corp confirmed on Thursday that it bought a 1% stake in GM. The state-run Chinese automaker said it expected its cooperation with GM would broaden to include more technology sharing and "exploration of overseas markets."
Test case for Chrysler?
The reversal in GM sentiment pointed to renewed confidence in an industry that faced collapse before unprecedented government intervention. It also offers hope for others, including smaller automaker Chrysler, looking to tap credit and equity markets in coming months, analysts said.
Sergio Marchionne, CEO of Chrysler partner Fiat said the IPO would help to understand the market's logic in terms of pricing expectations.
GM's initial valuation represents a more than 9% premium to its nearest rival Ford Motor Co -- the only U.S. automaker to have avoided a government bailout.
The GM IPO was the first major test for GM's new management team led by Akerson, 62, a former head of buyouts at The Carlyle Group.
"The new leadership team is doing very good work. Market share is up, prices per unit are up," said Xavier Mosquet, a senior partner at The Boston Consulting Group who advised the Treasury on its intervention into the U.S. auto industry.
GM is on track for its first full-year profit since 2004.
It has touted its market-leading position in fast-growth emerging markets led by China, and success with redesigned cars like the Buick LaCrosse, as well as the ability to innovate through the crisis embodied Chevy's Volt plug-in hybrid.
Analysts still see challenges for GM, including the overhang of the U.S. government's post-IPO ownership stake.
Other investor concerns include continued losses in GM's European arm - $1.3bn over the past three quarters -- and contract talks next year with United Auto Workers.
Post-IPO, a union health care trust will keep 13% of GM shares with a board seat representing its interests.
UAW President Bob King said on Wednesday that he welcomed a high stock price but his workers would not offer new concessions next year.