DETROIT - GENERAL Motors (GM) shares tumbled as much as 31 per cent to a 62-year low on Monday after analysts downgraded the automaker, citing cash levels that may fall below the minimum needed in the first quarter of 2009.
Analysts also warned that while government aid would decrease the risk of a bankruptcy for the No.1 US automaker, any assistance would come at a significant cost to existing shareholders.
GM shares closed down US$1 (S$1.496) to US$3.36 on the New York Stock Exchange, after falling to US$3.02, its lowest level since 1946, earlier in the day.
Barclays cut GM to 'underweight' from 'equalweight' and lowered its price target for the stock to US$1 from US$4. It said GM is expected to end 2008 with US$13.3 billion in cash and fall below its minimum the US$11 billion to US$14 billion in cash needs during the first quarter.
That would necessitate a government bailout, which is likely to 'significantly dilute GM's equity,' Barclays analyst Brian Johnson said in a research note.
Deutsche Bank cut GM to 'sell' from 'hold' and lowered its equity value to zero from US$4, saying GM may not be able to fund its operations beyond December.
GM plans to trim production in North America through the first quarter of 2009 due to declining demand, idling as many as 5,500 hourly workers, GM said on Monday in a filing with the US Securities and Exchange Commission. It expects to record a charge of at least US$300 million in the fourth quarter for the capacity reductions.
On Friday, GM and Ford Motor reported deeper-than-expected quarterly losses and said their rate of cash burn had accelerated, as an extended slump in car sales raised questions about the future of the US auto industry.
GM announced additional steps to increase its liquidity on Friday, but said that even with those moves, liquidity would be at or near the minimum needed to operate its business through the rest of 2008 and would fall significantly short of the minimum needed during the first two quarters of next year.
GM burned through US$7 billion in cash in the third quarter and warned its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.
WRONG CALL
GM ended September with US$16.2 billion in cash, down from US$21 billion at the end of the second quarter. Through the first nine months of 2008, it burned through more than US$14 billion.
Barron's, the influential investment weekly, reported on Sunday it was time to sell GM shares, adding it was wrong to have described the company as a 'buy' late last spring.
Credit Suisse said investors should avoid US automakers until vehicle sales start recovering.
'While a federal bailout may alleviate the bankruptcy risk, we think equity holders remain at risk,' Credit Suisse said in a note to clients.
It widened its fourth-quarter loss estimate for GM to
LOS ANGELES - STRUGGLING casino operator Las Vegas Sands said on Monday it suspended several projects, including sites in Macau, and has agreements to raise US$2.14 billion (S$3.2 billion) in new capital, including new funding from its billionaire chief executive, Mr Sheldon Adelson.
The announcement, amid worse-than-expected results for the third quarter, came after the company said on Thursday it was in danger of breaching lending conditions Dec 31 and defaulting on US$5.2 billion in revolving credit facilities secured by its Las Vegas operations.
Jefferies analyst Lawrence Klatzkin said the funding announcement eased worries that the company was headed for bankruptcy.
'The whole solvency risk question is gone,' he said.
'And if they really have this financing, then they can complete almost all the projects they were expecting on time.'
But the conference call took on a surreal air - starting more than 30 minutes late after President Bill Weidner said 'late-breaking events interceded.'
The company proceeded to give operating profit guidance for 2012, years beyond the current debt crisis, including an estimate of annual operating profit of US$1.26 billion out of a Singapore casino that has yet to be built, which was greeted with a skeptical question by an analyst.
Mr Adelson, 75, responded that the estimates were 'extraordinarily conservative.'
'We've scrubbed those numbers six ways to Sunday and it's difficult to get it down,' he said.
The 75-year-old founder controls 67 per cent of the company's shares with his wife Miriam Adelson.
The Adelsons personally loaned the company US$475 million this fall to avoid a funding crunch, but it is unclear how much cash the couple has left.
Shares fell 50 cents, or 6.3 per cent, to US$7.50 in after-hours trading, after rising 13.8 per cent before the market closed.
Mr Weidner said the company expects to close its capital raising 'by the end of the week,' adding details would be available in a regulatory filing by Tuesday.
Mr Adelson declined to answer analysts' questions about his participation, citing advice from a lawyer.
The company said it would indefinitely suspend development of its US$600 million St. Regis condominium tower in Las Vegas, and temporarily shut down sites five and six on the Cotai Strip in Macau, including a Shangri-La/Traders hotel tower, a Sheraton hotel tower and three casinos.
The Macau sites cost US$1.16 billion so far and would cost another US$430 million through June to suspend.
The company said other projects, however, were still on track, including the US$2.7 billion Marina Bay Sands to open in Singapore at the end of 2009; the casino portion of the US$600 million Bethworks project to open in Bethlehem, Pennsylvania, in the second quarter of 2009; and the Four Seasons Private Apartments Macao to open by the third quarter of 2009.
'Given the current conditions in the global credit environment, we have elected to significantly slow the pace of our development activities on the Cotai Strip ... as we focus our current efforts on maximising our cash flow,' Mr Weidner said in a statement.
As of Sept 30, the company had US$10.25 billion in long-term debt.
Mr Adelson said part of the company's strategy was to build casinos but also malls that it could sell off to pay off construction costs and debt.
As an example, he said its mall in Singapore could generate some US$200 million a year in cash flows with some US$4 billion in debt.
'If things get back to normal, we can sell that mall and pay for the entire Singapore property,' he said.
Meanwhile, Las Vegas Sands said its net loss for the quarter that ended Sept. 30 narrowed to US$32.2 million, or 9 cents per share, compared with US$48.5 million, or 14 cents per share, a year earlier.
Revenue rose 67 per cent to US$1.11 billion, from US$661 million a year earlier. Adjusted earnings were 2 cents per share, down from 12 cents per share last year.
The results fell short of the average forecast of analysts polled by Thomson Reuters, who expected Las Vegas Sands to earn 11 cents per share on US$1.16 billion in revenue. US$4.33 per share from US$3.52, and lowered its target price to US$5 from US$7.
Credit Suisse also sees Ford losing 58 cents per share in the fourth quarter versus its previous estimate of a loss of 22 cents per share. It lowered its target price to US$1 from US$4.
Separately, an analyst at J.P. Morgan Securities said both GM and Ford are likely to receive government aid, even as he widened his loss estimates for both companies after they reported far deeper-than-expected quarterly losses.
'Ford management's commentary on the third-quarter call as well as GM's comments raises our optimism that some form of government help is likely given dire Big 3 liquidity,' JP Morgan's Himanshu Patel wrote in a note to clients.
Ford shares closed down 9 cents, or 4.46 per cent, to US$1.93 on the NYSE. -- THOMSON REUTERS