China’s BAIC Mulls Raising Daimler Stake to Almost 10%

(Bloomberg) — BAIC Group is considering lifting its stake in Daimler AG to as much as 9.9%, according to people familiar with the matter, strengthening Chinese ownership of the Mercedes-Benz maker as Germany gets drawn deeper into global trade tensions.The move would put almost 20% of Stuttgart-based Daimler into the hands of two major Chinese owners. Zhejiang Geely Holding Group, owned by billionaire Li Shufu, bought a 9.7% holding last year.State-owned BAIC, which last reported a 5% holding in Daimler, has also raised the prospect of taking a seat on the supervisory board, said the people, who asked not to be identified as the matter is confidential. Geely has no board representation.Gaining a second anchor shareholder could benefit Daimler, which has seen profit margins pressured from hefty investments into electric mobility. Potentially, the move could ease the way for the German manufacturer to lift its 49% stake in its main Chinese joint venture with BAIC.But complications could also arise. Daimler has had concerns that such a large Chinese ownership stake would increase scrutiny on the company by the U.S. Committee on Foreign Investment, or CFIUS.Trade tensions involving the U.S. and China have already whipsawed German carmakers. On Sunday, China’s ambassador in Berlin underscored the strains by bringing up car sales as he threatened to retaliate against Germany if it goes along with U.S. demands to exclude Huawei Technologies Co. as a supplier of 5G wireless equipment.Daimler Chief Executive Officer Ola Kallenius and BAIC chairman Xu Heyi are in direct contact over future co-operation, the people said.“We welcome long-term oriented investors,” Daimler management board member for China, Hubertus Troska, told reporters on Friday in Stuttgart. “China is and remains a strategically important market for us.”Troska declined to comment on BAIC potentially lifting its stake. Asked whether Geely — which owns Benz competitor Volvo Cars and is the biggest shareholder in truckmaker Volvo AB — or BAIC might get a seat on the supervisory board he said this would be “for the shareholder meeting to decide.”BAIC declined to comment.Speculation about BAIC upping its stake in Daimler was fueled last month by a filing saying HSBC Holdings has built a position of more than 5% in the German carmaker through stocks and instruments. The banking giant this July helped BAIC building its initial stake in Daimler, and the Chinese car-maker recently refinanced a $2.44 billion loan.Even though there is no sign CFIUS is looking into the Daimler-BAIC case, several Germany-based bankers have said that the U.S. authority is becoming increasingly unpredictable regarding transactions into the country.Geely and BAIC likely won’t target a stake of more than 10%, however, because holdings of more than 10% per investor require a lengthy and cumbersone review from German watchdog Bafin.For Kallenius and his team, balancing the interests of two competing Chinese shareholders adds to the challenges as the German carmaker seeks to cust domestic costs and restore weak returns.The world’s bestselling luxury-car maker targets a margin of at least 4% at the main Mercedes-Benz cars unit next year, roughly half of what French mass-market manufacturer PSA Group generated in the first half his year.BAIC’s third-quarter earnings provided a fresh reminder of the Mercedes-Benz joint venture’s vital importance as its profits and cash help stem losses at the Chinese manufacturer’s domestic brand and a venture with Hyundai Motor Co.“For years, outrageous Beijing Benz margins papered over the cracks at BAIC,” Sanford Bernstein analyst Robin Zhu said in a note, adding that performance at the venture has recently moderated, exposing cracks elsewhere. “Run by politically-minded management, we hold little hope of serious structural change at BAIC.”Reuters was first to report BAIC could raise its Daimler stake to about 10%.To contact Bloomberg News staff for this story: Eyk Henning in Frankfurt at [email protected];Tian Ying in Beijing at [email protected];Christoph Rauwald in Frankfurt at [email protected] contact the editor responsible for this story: Anthony Palazzo at [email protected] more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.