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WASHINGTON: The US Treasury on Monday unveiled a US$6-billion package to assist GMAC, the troubled financial arm of General Motors.
The Treasury said in a statement it would purchase US$5 billion in senior preferred equity with an eight per cent dividend from GMAC, which is also partially owned by Chrysler parent company Cerberus Capital Management, and make a US$1-billion loan to General Motors.
In exchange, Treasury would receive warrants from GMAC in the form of additional preferred equity equal to five per cent of the preferred stock purchase and would be paid a nine per cent dividend if used.
GMAC said the sale of its preferred membership interests and warrants to Treasury was completed Monday.
The GM loan comes on top of a US$13.4-billion rescue loan package the US government approved in early December for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GM would receive an additional US$4 billion from February pending congressional approval.
Treasury said it agreed to the additional US$1-billion loan "so that GM can participate in a rights offering at GMAC in support of GMAC's reorganisation as a bank holding company."
GMAC faced possible bankruptcy, jeopardising financing for GM car dealers and customers, and its demise could have dragged down the Detroit automaker's fortunes with it.
GMAC has lost US$5 billion over the past six months in investments in the plagued automobile and real estate sectors.
Treasury said the GMAC plan is "part of a broader programme to assist the domestic automobile industry in becoming financially viable." Under the agreement, GMAC must also comply with enhanced restrictions on executive compensation.
The funds for all automaker loans were to come from a US$700-billion government bailout plan initially introduced earlier this year to shore up financial firms, Treasury said.
- AFP/yb
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