Governments may be stuck with GM stocks

Canada may have trouble unloading its $3.5-billion stake in General Motors Co., as there won’t be many “buying triggers” to spur a sale, according to documents from the agency that manages the shares.

Advisers told the board of directors of Canada GEN Investment Corp., which oversees Canada’s and Ontario’s nine per cent GM stake, on May 16 that investor demand may be weak given the company’s forecast for “flat per- formance,” board minutes obtained last week by Bloomberg News through Canada’s freedom-of-information law show. Directors authorized a sales strategy on Dec. 21 that allows the agency to hire dealers to sell the stock, according to the records.

Because the government may be seen as an insider, selling the shares in the world’s largest automaker could “have negative market consequences, particularly given the large size of holdings vis-a-vis the size of the public float,” directors were told by Canada GEN Investment executive Michael Carter.

The caution underscores the challenges the U.S. and Canadian governments face in unwinding their ownership more than three years after the two countries rescued the company from insolvency. Canada is the thirdlargest shareholder in GM, behind the U.S. Treasury, which holds 32 per cent, and the GM-UAW Voluntary Employee Beneficiary Association with 10 per cent. Canada and Ontario gave $9.5 billion in financial assistance to GM in 2009, while the U.S. provided $50 billion.

The most likely purchaser of government-owned stock is probably GM itself. .

Directors on May 16 agreed with management to extend a contract with investment bank Rothschild Canada Ltd. to advise on the GM holdings. Rothschild is being paid a monthly fee of $50,000, with a fee of $100,000 for months of “heavy workload.”

David Drinkwater, a Rothschild executive based in Toronto, didn’t reply to a phone call seeking comment.