January 28, 2014

Kyle Bass of Hayman Capital Said to Invest in General Motors as a Bet on Detroit

In December 2013, Kyle Bass took a stake in General Motors Co. (GM), said a person familiar with the matter, indicating further investor confidence in the auto industry’s recovery as the U.S. winds down its ownership role.

“Detroit is back. And GM could lead the way forward on the equity front,” the Dallas-based fund founded by J. Kyle Bass said in a presentation published on the website HVST.com. “GM equity represents one of the most compelling risk/reward situations of any large cap in the world today.”

The largest U.S. automaker should increase in value by more than 40 percent in 12 to 18 months, Hayman Capital said in the presentation. The stake in Detroit-based GM is one of the hedge fund’s largest investments, said the person, who asked not to be identified because the matter is private. Hayman declined to disclose the size of its stake.

The U.S. Treasury expects to sell its remaining 31.1 million GM common shares by year-end, depending on market conditions, the government said last month. The sale would come after almost half a decade of U.S. government oversight following its 2008 bailout and 2009 bankruptcy. Bass, known for his prescient bet against subprime home mortgages before the financial crisis, said the U.S. exit is a trigger for the stock. “The U.S. government will be out of the way before the end of the year,” Bass said yesterday in a telephone interview. “They’ve been a source of constant selling pressure in the equity this year.”

GM should “at least trade in line” with its auto peers, according to the Hayman presentation. Bass said that by his reckoning, GM trades at three times Ebitda, while Dearborn, Michigan-based Ford trades at 4.4 times Ebitda.

“A strong case can be made that GM should trade at a premium to the group,” Hayman said. Bolstering that investment argument are the company’s “unique position and strong underlying fundamentals, a best-in-class leverage to global growth markets, improving operational efficiency from ongoing turnaround efforts and an improving product cadence.”

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.