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The Canadian government will fully exit its investment in General Motors Corp. (GM) eight years after a planned initial public offering next year, senior government officials said Monday.

Canada's federal and Ontario provincial governments will provide the struggling automaker with up to US$9.5 billion and receive an 11.7% equity stake in the company and US$400 million of preferred shares under its restructuring plan. That package includes a previously advanced C$500 million.

As reported, GM filed for Chapter 11 bankruptcy protection in Manhattan earlier in the day. In bankruptcy, it will split into a "New GM" and an "Old GM," with assets of the former transferred into an entity owned by the U.S. and Canadian governments, the United Auto Workers union and the company's unsecured creditors.

"We have agreed with U.S. Treasury that we must be fully divested by eight years maximum," a government official said at a briefing to reporters, speaking on condition of anonymity.

He said the Canadian government will sell a minimum 5% of its shares each year, at least 30% by the third year and minimum of 65% by the end of the sixth year.

"The only caveat to that is we won't sell our shares at a time which is prejudicial to the value of those shares for the taxpayer," the official said.

He also said General Motors Canada Ltd. won't file for bankruptcy protection in Canada after reaching key agreements with a group of U.S. and offshore hedge funds, as well as with dealers.

The Canadian unit will receive a US$1.3 billion medium term loan at a minimum interest rate of 7%. Half that money has to be repaid seven years after the government divests its stake, and the balance in the eight year, the official said.

-Nirmala Menon, Dow Jones Newswires; 613-237-0668; nirmala.menon@dowjones.com

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