SAIC Motor Corp, China’s biggest car maker, reportedly plans to raise funds by selling key operations to a listed subsidiary in a $US2.5bn deal that will help the groups expand world-wide.
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Shanghai Automotive Co. Ltd., SAIC’s 67.66%-owned unit, said on Wednesday it would buy assets worth 20bn yuan ($2.5bn) from its parent – including stakes in ventures with General Motors and Volkswagen, according to Reuters.
The subsidiary will issue 3.1bn new shares priced at 5.82 yuan each to SAIC, and transfer non-essential assets to it, and the new shares will raise SAIC’s stake in Shanghai Auto to 83.4%, according to Reuters’ calculations.
“This will make Shanghai Auto more appealing to investors, and make it easier to fund the group’s own-brand car business, which will need a lot of capital,” Dong Jianhua, auto analyst at Southwest Securities, told the news agency.
Shares in Shanghai Auto surged 6% to 5.99 yuan by midday on Wednesday in response to the news and have already risen over 80% this year, partly in anticipation of the deal.
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By GlobalDataReuters said SAIC now holds a 30% stake in its car-making venture with GM, one of China’s most profitable car making ventures, while Shanghai Auto holds 20%. The venture sold 201,901 cars in the first half of this year, up 49.1% from a year earlier. The venture with Volkswagen, which is 50% owned by SAIC, sold 161,900 vehicles in the first half, the report added.
It noted that SAIC earlier this year said it would spend $1.71bn to develop and sell its own-brand cars, with the first model to hit the market by the end of the year. By 2010 it aims to sell over 200,000 own-brand cars annually, 45,000 of them to overseas markets including Europe, SAIC executives told Reuters in April.
The news agency noted that SAIC had previously indicated it was considering an initial public offering abroad, but analysts said selling assets to its subsidiary could prove a quicker and more convenient way of raising funds.
“Auto stocks are not so popular nowadays globally with GM and others all going downhill,” Zhang Xin, a senior analyst with Guotai Junan Securities, told Reuters.
With the Shanghai stock market booming and the Chinese government encouraging big companies to list shares domestically, it now makes more sense for SAIC to list at home than abroad, he said.
Other assets to be injected into Shanghai Auto include SAIC’s equity in SAIC-GM-Wuling, a commercial vehicle tie-up with GM in south China, Shanghai Auto said, according to the report.
If the deal had been in effect during the first half of this year, it would have increased Shanghai Auto’s net profit during the period by 150% to 1.38bn yuan, the company also said.
Reuters added that other major Chinese automakers have been planning IPOs to raise funds for expansion in the country’s booming market, where car sales jumped 36.53% from a year earlier to 2.51m in the first half.
