SHANGHAI/HONG KONG (Reuters) -- China's Geely Automotive, which has sought partnerships with both Volvo and Opel, is in talks about selling $250 million of its convertible bonds and warrants to an arm of investment bank Goldman Sachs, two sources said.
"The two sides have basically agreed on the investment in Geely already, but have yet to work out some technical details," said one source with direct knowledge of the deal.
Geely, China's 10th-largest vehicle maker, said this month its parent was considering a bid for Ford Motor Co.'s Swedish Volvo brand in partnership with a local government-backed investment firm. A successful deal would boost Geely's profile and provide access to Volvo technologies.
A source said last week that Geely's parent, privately held Zhejiang Geely Holding Group Co. Ltd., also had approached Canadian auto parts maker Magna International Inc. about a potential production partnership on GM's European Opel division. Magna is holding off on such partnerships for now, the source said. General Motors Co. had agreed earlier this month to sell a 55 percent stake in Opel to a group led by Magna.
Geely would use the proceeds from a Goldman deal to boost its production capacity -- including adding 150,000 units a year in the central province of Hunan, which can now build 50,000 units, one of the sources said.
Geely had said previously it would buy three new plants from its parent, with a combined annual capacity of 165,000 units once construction was completed.
The sources declined to be named as the talks were not yet public. Geely and Goldman officials declined to comment.
The Wall Street Journal reported today that Goldman Sachs Capital Partners is the arm of the New York firm planning the Geely investment. The Chinese automaker plans to use the investment as working capital during its expansion, which could free up funds for the Volvo bid, the Journal said.
Car sales in China, the world's largest auto market, have climbed this year while the recession pinches global demand. China's sales have received boosts from Beijing's policy initiatives, including sales tax cuts on small cars and subsidies for rural buyers.
Geely, which competes against Chery Automobile and other local brands, has current annual production capacity for 370,000 vehicles, according to data provided by a Geely representative.
The automaker, of the eastern city of Hangzhou, had said previously it aimed to add capacity of 315,000 in phases, including taking over its parent's three facilities.
Geely's 2009 car sales through August rose 35 percent to more than 185,000 units, equivalent to 74 percent of its full-year target, another company executive said.