GAC listed after 8-year marathon

09:03, September 06, 2010      

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Guangzhou Automobile Group Co Ltd (GAC), China's sixth-largest auto producer by sales, was listed on the Hong Kong stock exchange on Aug 30, finally finishing its eight-year marathon to go public.

To complete the move, GAC acquired all outstanding shares of its Hong Kong-listed unit Denway Motors Ltd through a stock swap. Denway was delisted on Aug 25.

Though GAC is now listed, it has not sold shares to outside investors to raise funds.

With sufficient cash flow, the company currently has no urgent need for new funds, Zhang Fangyou, president of GAC was quoted by recent media reports.

Yet analysts believe GAC went public to eventually raise the capital crucial for long-term development.

GAC acquired homegrown SUV maker Changfeng Motor and broke ground for its joint venture facility with Fiat last year and took over minibus maker Gonow Auto this year - all of which require a great deal of money, Zhang Yi, an automotive commentator wrote in his column.

The company will also have to invest several billion yuan on its own-brand Trumpchi, Zhang wrote.

Zhang Xin, an auto analyst with Guotai Jun'an Securities, said a public offering is an effective way to raise funds that eliminates interest costs required in bank lending.

He speculated that GAC will consider raising funds by issuing additional shares at the end of this year while the industry is still robust.

Strong profitability

On the second day after its listing, GAC released first-half report, saying net income rose to 2.31 billion yuan from 640 million yuan a year earlier.

The strong profitability can in large part be attributed to brisk sales at its joint ventures with Toyota Motor Corp and Honda Motor Co, analysts said.

Combined sales of Camry and Accord sedans made at the joint ventures hit 164,000 units in the first six months this year, almost half of GAC's total sales of 349,000 vehicles in the period.

Analysts warned that GAC should not rely too much on the joint ventures because the company could be susceptible to outside decisions on when to introduce new models.

Several other automakers in China are lining up for pubic offering as well, including large State-owned enterprises FAW Group Co and Beijing Automotive Industry Holding Co (BAIC).

FAW's two listed subsidies - FAW Car Co and Tianjin FAW Xiali Automobile Co - announced in mid-July that their parent company planned to establish a joint stock limited company and inject its holdings in the two sub-units to the new entity.

The announcement generated industry-wide speculation whether FAW would be listed through an initial public offering or a backdoor listing using FAW Car Co.

BAIC also plans to reorganize assets and set up a joint stock limited company, which has already received government approval.

A recent report in the newspaper Economic Observer quoted Xu Heyi, chairman of BAIC saying that the new company will be established soon and the listing plan will be formulated quickly.

Eager for capital

Enthusiasm for going public is closely associated with automaker strategies to develop their own-brand vehicles following explicit directions from central government, said Zeng Zhiling, director of JD Power Asia Pacific Forecasting.

Their need for capital shows that homegrown brands are still in an initial stage of development where massive fund input is essential, Zeng said.

BAIC currently has no own-brand passenger vehicles. The company plans to launch more than 20 models under its own brand by 2014 - mainly based on the acquired technologies from Swedish brand Saab - with the first sedan rolling off the production line next year.

FAW has two self-developed brands - Hongqi and the Besturn that debuted in 2006. Its listed unit FAW Car Co said in a recent statement that it plans to invest 1.8 billion yuan in facility improvements to resume assembly of its Hongqi sedans, which suspended mass production two years ago due to stagnant sales.

GAC's own-brand sedan Trumpchi made its premier at the Beijing auto show in April this year and its first car rolled off the production line last Friday. The model will go on sale by the end of this year, according to the company.

Source:China Daily


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