A phalanx of Chinese auto makers are racing after overseas stock listings, especially in Hong Kong, to facilitate their expansion plans, despite the growing glut of vehicles, due to slowing sales, in the domestic auto market.
These firms include State-owned big names
Shanghai Automotive Industry Corp (SAIC); Chang'an Motor Corp;
Beijing Automotive Holdings Corp; Dongfeng Motor Corp; First Automotive Works Corp (FAW); Chery Automobile, an upstart car maker; and privately owned Huatai Automobile, a small player in the sector.
SAIC last month launched a new shareholding affiliate,
Shanghai Automotive Group Co Ltd, to pave the way for its listings in
Hong Kong and New York. The firm's IPOs (initial public offerings) are expected in the year's second half.
Media have reported SAIC, which already has a Shanghai-listed unit, expects to raise up to US$6 billion US$2 billion in
Hong Kong through the overseas listings.
Investment banks have said the Beijing-based auto firm and Chang'an are expected to launch IPOs in
Hong Kong this year to raise up to US$1 billion.
Chang'an, which has a Shenzhen-listed affiliate, said it will list its logistics unit, Chang'an Mingsheng Logistics Co Ltd, in Hong Kong.
Dongfeng, which has a Shanghai-listed unit, plans to list in
Hong Kong this year. The firm is expected to raise US$500 million.
FAW, which has a Shanghai-listed car affiliate, hopes to list its lucrative heavy-duty truck unit in Hong Kong, said sources from a domestic securities firm.
They did not elaborate.
Huatai, a sports utility vehicle maker and partner of South Korea's Hyundai Motor in China, said it expects to float stocks in
Hong Kong this year.
Analysts suggest listing is a good way for domestic automakers, who are in dire need of massive capital, to expand their territories in the industry to survive increasingly fierce competition.
"They will have to expand rapidly if they don't want to give up," said Song Bingshen, with China Securities Co Ltd.
SAIC aims to increase its annual output to 4 million vehicles, and to become one of the world's top six automakers by 2020.
The firm sold 850,000 vehicles last year.
The company will pay US$500 million to buy a 48.9-per-cent stake of Ssangyong Motors, according to an agreement, signed last October, with creditors of the South Korean automaker.
SAIC is negotiating with British car producer MG Rover a possible merger worth 1 billion pounds (US$1.9 billion).
The Chinese firm will pay more than US$3 billion, with US partner General Motors, to double its joint venture's annual production capacity to 1.3 million vehicles by 2007.
Its joint venture with Volkswagen plans to expand annual production to 1 million vehicles by 2008. It currently produces 450,000 units.
FAW, partner of Volkswagen, Toyota and Mazda in China, plans to invest up to 40 billion yuan (US$4.8 billion), between 2001 and 2007, to double its annual output to 2 million vehicles by 2008.
Both the
Beijing auto group and Chang'an aim to increase their annual output to 1 million vehicles by 2008.
However, their listing roads appear to be a little rocky; they are being affected by the slumping growth of China's auto market.
"Many investors have become hesitant to invest in auto stocks compared with two years ago, due to the slowing domestic auto market," Song said.
The auto sector was the fastest-sliding manufacturing industry in the domestic stock markets last year, Song said.
Prices of domestic auto shares plummeted about 50 per cent between last April and the end of the year, he said.
The net profits of 42 Chinese mainland-listed automakers dropped to less than 1.2 billion yuan (US$144.9 million) in the third quarter of last year, from 2 billion yuan (US$241.5 million) in the second quarter, Song said.
Chinese automakers also performed poorly in Hong Kong's stock market.
Prices of Hong Kong-listed Brilliance China Auto, the joint venture partner of German luxury carmaker BMW, slid more than 60 per cent last year.
Last week, media reported SAIC may lower the amount to be raised in its
Hong Kong listing by half due to the sharp slowdown in the domestic auto industry and the equities market.
SAIC denied the reports.
Total sales of vehicles produced in China rose 15.5 per cent, year-on-year, to 5.07 million units last year.
The growth rate was down from 34 per cent in 2003, while the growth rate of passenger car sales plunged to 15 per cent last year, from 75 per cent in 2003.
"However, leading automakers are being undervalued in stock markets dragged by the sagging entire auto sector," Song said.
"They are, and will continue to be, worth investing in. I believe overseas investors have a longer-term perception of their profits than those in the Chinese mainland," he said.
Agreeing with Song, Zhang Xin, with Guotai & Jun'an Securities Co Ltd, said leading Chinese automakers have the ability to earn greater profits with the growing polarization in the domestic auto industry, even if the sector is in the red in the near future.
"The good will be better, and the bad will be worse," Zhang said.
FAW, SAIC and Dongfeng, combined, control nearly 45 per cent of China's vehicle output, and 90 per cent of the sector's profits, he said.
"Compared with other industries in China, the auto sector should be at least at the mid to upper level," said Yale Zhang, a Shanghai-based analyst with US auto consultancy CSM Worldwide Corp.
"Domestic automakers are also trying to gain greater publicity globally through overseas listings," Yale Zhang said.
In addition to raising capital, Huatai said it hopes to improve its corporate governance to benefit management and customers by becoming a public company.
