China state planner positive on Geely's Volvo buy

China's state planner said it is leaning in favour of approving a landmark $1.8 billion deal for Zhejiang Geely, China's top private carmaker, to buy Ford Motor's (F.N) money-losing Volvo unit.

The deal, which was reached last month, must be approved by China's National Development and Reform Commission, the country's state planner, and the Commerce Ministry before it can close.

The NDRC had a positive attitude toward approval of the deal, NDRC Vice-Chairman Zhang Xiaoqiang told reporters on Saturday at the Boao Forum on the tropical southern Chinese island of Hainan.

"Personally I think as a private enterprise, after years of hard work, coming to a deal to acquire Volvo was not an easy task," he said. "However there could be pressure on funding, problems arising from cultural collaboration and relationships with unions. If they can answer these queries, I think the NDRC's attitude is positive."

Zhejiang Geely Holdings Group, parent of Hong Kong-listed Geely Automobile (0175.HK), said last month it would pay Ford $1.8 billion and provide another $900 million in working capital for Volvo, in the biggest-ever purchase of a foreign carmaker by China's fast-growing auto sector.

In an earlier proposal, Geely had said a key to turning around the loss-making Swedish carmaker would be to significantly increase its scale, including construction of a major new manufacturing base in China. [ID:nTOE62S038]

Such major investments must be approved by the NDRC, while the Chinese Commerce Ministry would need to approve the deal itself.

Failure to win similar approvals was behind the sinking of another major deal that would have seen Sichuan Tengzhong Heavy Industrial Machinery Co, an obscure heavy machinery maker buy GM's [GM.UL] money-losing Hummer brand earlier this year. [ID:nN24166804]

But industry watchers believe the Geely deal has a much better chance for approval, as Volvo is seen as a better global brand and Geely is believed to have vetted the proposal with regulators before reaching its agreement with Ford.