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GM borrowings spark buyback speculation
GM borrowings spark buyback speculation

General Motors is boosting its cash with $US11 billion ($A10.66 billion) in new credit lines, a move that could mean the vehicle manufacturer is preparing to buy back its shares from the government.

The company on Monday said it had acquired the credit from 35 financial institutions in 14 countries. It now has more than $US42 billion ($A40.72 billion) in available cash and credit.

GM wouldn't say specifically what it plans to do with the money, only that it's a source of "backup liquidity" that may be used for "strategic initiatives".

But industry analysts said GM could be hoarding the cash to buy back stock, specifically from the US government. The US Treasury Department owns 26.5 per cent of General Motors. It received the sake in exchange for a $US49.5 billion ($A47.99 billion) bailout about four years ago.

In a note to investors, Barclays analyst Brian Johnson suggested GM should use the bulk of its cash to gradually buy back its shares.

"We, and other investors, would view a share buyback as the best use of cash in the near-term," he wrote.

Analysts said GM could also use the cash to pay for a restructuring of GM's troubled European operations, buy Ally Financial's European auto finance division or further fund its pension plans. Government-controlled Ally is GM's former financing arm.

GM says the new lines have more favourable terms than its old one and will allow it to borrow in different currencies.

Two of the three New York debt-rating agencies, Moody Investors Service and Standard & Poor's, quickly gave the GM credit lines an investment-grade rating on Monday.

But that doesn't mean GM's overall corporate credit rating changed from junk status. S&P's corporate rating on GM remains at "BB+," the highest junk rating. Moody's kept the corporate rating at "Ba1," also one notch below investment grade. Moody's has given GM a positive outlook and said it remains on track to return to investment grade within the next year.

GM's new lines of credit include a three-year $US5.5 billion ($A5.33 billion) facility and a five-year $US5.5 billion ($A5.33 billion) line. They replace GM's existing $US5 billion ($A4.85 billion) credit line, which was to expire in 2015. GM also has $US31.6 billion ($A30.64 billion) in cash and securities.

Chief Financial Officer Dan Ammann said the lines are a vote of confidence in the company's financial strength.

The automaker, known derisively as "Government Motors" for taking bailout money to avoid going under in 2008 and 2009, has long wanted the government to sell its stake and exit the business. But the government, which still owns 500 million GM shares, is waiting for the stock price to rise before making a move. The government is $US27 billion ($A26.18 billion) in the hole on its investment, and to break even, GM shares would have to sell for $US53.

At this point, they're not even close. Shares fell 22 US cents to close at $US25.57 on Monday.

It would cost GM nearly $US12.8 billion ($A12.41 billion) to buy back all of the government's shares at the current price.

Last week, GM announced a $US1.48 billion ($A1.43 billion) third-quarter profit on strong North American earnings, big improvements in South America and strong earnings in international areas outside of China.

But there are signs of weakness. Profit in North America, GM's most lucrative market, fell 17 per cent from July through September.

The company's market share in the US dropped more than two percentage points to 17.6 per cent, and its US sales increase of 3.4 per cent for the year lags overall market growth of 14.5 per cent. In Europe, where it hasn't made money in a dozen years, GM lost $US478 million ($A463.43 million) before taxes.