Geely, Ford set to sign Volvo deal before March 31

China's Geely Holding Group Co. will complete all the financing preparations for the Volvo deal before March 15 at the latest, and will sign the final contract before March 31, said a person in the knowledge.

According to the earlier agreement, US automobile giant Ford Motor Co. (NYSE: F | Quote | Chart | News | PowerRating), parent of Volvo, fixed a financing deadline in the first quarter of this year for Geely.

On March 3, the Geely Chairman Li Shufu did not deny the saying at an interview. Geely has nearly completed its financing preparations if the location selection of the Volvo factory in China is not taken into account, disclosed the person. The selection will concern the financing of about CNY 3 billion, he added.

Earlier reports guessed that the Chinese company had decided to locate the Volvo project in the economic development zone in Yizhuang, Beijing after the completion of the Volvo acquisition.

The person, however, stressed that Geely was still talking with many regional governments, and had not signed any formal contract with the Yizhuang development zone.

When negotiating with Ford about the Volvo deal, the Chinese company successively acquired DSI, an Australian transmission manufacturer, and Zhejiang Zhongyu Automobile Co., Ltd., a Chinese special vehicle producer partnering with Benz.

Eearlier, Geely inked a cooperation agreement with the municipal government of Lanzhou, northwest China, intending to drive up the yearly capacity of its Lanzhou production base to 120,000 vehicles.

In addition, sources said that the Chinese company would acquire Volvo for USD 1.5 billion to USD 2 billion, most possibly for about USD 1.6 billion.

How can Geely afford the acquisition after a series of expansion? Industry insiders stressed that the Chinese company paid USD 56 million for the DSI deal, thanks to the financing of its listed arm Geely Automobile Holdings Ltd. (SEHK: 0175).

It took over Zhongyu Automobile through stake swap, and provided little cash. Moreover, the company need not inject much money into its Lanzhou production base, because of the support of the local financing, added the insiders.

Last September, Geely Automobile and Goldman Sachs Capital Partners (GSCP) entered into an agreement, under which GSCP would subscribe for convertible bonds and warrants of the Hong Kong-listed automaker.

On November 30, 2009, Beijing Geely Wanyuan International Investment Corp., a subsidiary Geely newly formed for the Volvo deal, signed loan agreements with the Export-Import Bank of China (China Exim Bank) and Bank of China (BOC).

Besides, several global banks in the European Union agreed to supply Geely with low-interest loans, with the regional government in Sweden as a guarantor, read some reports.