GM plans issuing fresh shares to pay off debt

General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the US government, bondholders and the United Auto Workers union.

The unusual plan, which was detailed in a filing with US securities regulators, would only need the approval of the US Treasury to proceed since the US government would be the majority shareholder of a new GM, the company said.

The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM’s shares could be worthless whether the company restructures out of court or in bankruptcy.

The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM’s stock investors with just 1 per cent of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader US economy.

Once GM has issued new shares to pay off its debt to the US government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split.

Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM’s existing shareholders would see their stake in the 100-year-old automaker all but wiped out. The automaker said it expected to draw another $2.6 billion from the US Treasury before a June 1 deadline set by the Obama administration for it to reach agreements with all of its key stakeholders.