Volvo to buy Geely out from joint ventures, eyeing potential IPO

Volvo Cars has reached an agreement to buy out its parent company Zhejiang Geely Holding from their joint ventures in China, with an aim to make a potential initial public offering for the Swedish carmaker a more attractive investment.

China's Geely, which also owns a 9.7% stake in Daimler, announced earlier this year that it was weighing its options concerning Volvo, which included a stock market listing and IPO.

In February, plans to merge Volvo Cars with Geely's Hong Kong-listed Geely Automobile were dropped.

Taking complete control of the joint ventures in China could help pave the way for a Volvo Cars IPO, according to Hampus Engellau, an analyst at Handelsbanken Capital Markets.

He told Reuters: "The clearer the ownership structure is, and the clearer the stakeholders in the company look, the easier it gets for investors to consider what it is they are investing in."

Read more: Volvo to merge engine ops with Geely & focus on EVs

Automotive analysts are predicting that other carmakers will follow suit with similar Chinese deals when the requirement for auto manufacturing to be carried out as part of a joint venture with domestic companies is lifted next year.

The rules have already been lifted for electric vehicle manufacturers, which enabled Tesla to produce and sell its cars through fully-owned operations in China. Volkswagen has already taken over full control of an electric car unit in the city of Hefei in the country's east.

The financial terms for the deal have not been disclosed, though it will give Volvo Cars full ownership of its production plants in Chengdu and Daqing, its research and development facility in Shanghai and its Chinese sales company.

Last year, the Swedish automaker sold 166,000 vehicles in China, and its dealers are offering attractive discounts to compete with the likes of BMW and Audi.

Volvo Cars was acquired by Geely from Ford in 2010 in the wake of the financial crisis. Since then, ownership of its Chinese plants has been shared with its parent company.

Read more: Geely squares up to Tesla with launch of high-end electric brand

The deal is still subject to regulatory approval and, according to Volvo Cars, will be carried out in two stages, beginning next year and being completed in 2023.

"These two transactions will create a clearer ownership structure within both Volvo Cars and Geely Holding," Geely's CEO Daniel Li said in a statement. He made no reference to the IPO.

In June, Volvo Cars CEO Hakan Samuelsson said the company was progressing towards a possible IPO later this year. He added that while it would continue sharing its platforms and components with Geely, it would be at "an arm's length distance," consistent with the way independent companies do business.

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