BURLINGTON – Political considerations are likely to keep Canada from following Washington's lead and selling its stake in General Motors Co , industry experts say, potentially until after the next general election, scheduled for 2015.
While Finance Minister Jim Flaherty on Wednesday repeated that Canada has no interest in being a long-term shareholder, experts say that the government's decision on when to sell will primarily hinge on political, rather than economic, factors.
The U.S. Treasury said on Wednesday that it plans to sell its entire stake in GM over 15 months, all but assuring a multibillion dollar loss.
The Treasury became a GM shareholder in 2009, when it contributed about $50 billion to a bailout to keep the company afloat. It will initially sell 200 million shares back to GM for $5.5 billion and sell its remaining stake, of about 300.1 million shares, through "various means."
The poor performance of automotive stocks suggests that Canada would also face a sizeable loss if it sold GM shares over the next two years, said Tony Faria, auto industry expert and professor at University of Windsor in Ontario.
"For the Canadian government, it's going to be a political timing decision, it's not going to be based on financial considerations," he said. "Because whenever they sell, they are going to end up having lost some money."
Canada's federal government and the province of Ontario gave a combined C$10.8 billion to GM's restructuring. The governments' combined 9 percent stake, made up of around 140 million common shares and 16.1 million preferred shares, was worth C$3.5 billion at the end of September.
Faria said that with last month's U.S. election behind him, President Barack Obama does not have to worry about how the unfavorable news of selling GM shares at a loss will affect his popularity.
In contrast, Canada looks unlikely to go to the polls until October 2015 and has little incentive to sell before then.
"From a fiscal standpoint, there really is no particular rush. It does, to some extent, become as much a political decision as an economic decision when they think it's time to sell," said Doug Porter, deputy chief economist at BMO Capital Markets.
Flaherty, who said he spoke Wednesday morning with GM Chairman Dan Akerson to discuss the Treasury sale, said that Canada has no immediate plans to sell its shares.
"We've always been clear about two things. One, that we will not have a fire sale - we will not sell the shares without getting the best value we can for Canadian taxpayers - and secondly, that we are a Conservative government. We are not interested in the long term in being shareholders in private corporations," Flaherty told reporters in Burlington, Ontario.
"Over time we do intend to divest. On the timing, I'll have to get back to you."
DEBATE AND CONTROVERSY
Flaherty also addressed a debate over Canada's public pension plan, the Canada Pension Plan (CPP), saying that at some point it may be appropriate to increase CPP contributions, but that now was not the time because the economy was not strong enough.
He declined to comment on the controversy surrounding Bank of Canada Governor Mark Carney's interaction with members of the opposition Liberal Party.
Carney, who will become governor of the Bank of England in July, has been under fire after details emerged about Liberal efforts earlier this year to woo him to run for the leadership of the party, which was once dominant but is now Canada's third-place party.
"I've spoken with the governor, I really don't have any comment on the issue right now. I imagine he, at some point, might be willing to respond," Flaherty said.
Bank of Canada spokesman Jeremy Harrison said no statement from Carney was imminent: "The bank currently has no media activities planned for the governor over the next few weeks of the Christmas holidays. The governor has a regularly scheduled press conference on 23 January, in support of the MPR (Monetary Policy Report)."
(Writing by Andrea Hopkins and Susan Taylor; Editing by Peter Galloway and Phil Berlowitz)