Shanghai Auto will buy China car assets from parent

Shanghai Automotive Co., which makes cars in China with General Motors Corp., said it will buy 21.4 billion yuan ($2.69 billion) of assets from its parent, creating the nation's largest publicly traded carmaker to fund its overseas expansion. The shares rose as much as 10%. Shanghai Auto will buy stakes in 16 units from parent SAIC Motor Corp., including ventures with General Motors and Volkswagen AG, the company said in a statement 28 August. The company will also sell 15 units, valued at 2.34 billion yuan to its parent. The move will help raise Shanghai Auto's profitability by giving it stakes in the country's two biggest carmaker ventures. It will also help SAIC tap capital markets by increasing its stake in the publicly traded unit instead of selling shares in the parent company. SAIC, which has spent $685 million buying overseas brands and plants, is developing its own range of vehicles and has hired GM's former China President Phil Murtaugh to oversee a global expansion.

Shanghai Auto will pay for its purchase in cash and by issuing 3.28 billion new shares at 5.82 yuan each, according to its statement. After the transaction, SAIC will boost its stake in Shanghai Auto to 84% from the current 68%. The company said on July 13 it plans to issue 3.1 billion new shares to buy about 20 billion yuan worth of assets from its parent. Shanghai Auto's shares rose as much as 10%, the daily trading limit 28 August in Shanghai and changed hands at 5.69 yuan at 11:30 a.m. The stock has gained as much as 72% this year, compared with the 43% rise in the key Shanghai A share index.

Shanghai Auto had its first profit decline in three quarters in the three months ended June on rising costs. Net income fell 1.5% to 318 million yuan in the Q2. The company's operating costs rose 61% in the H1 from a year earlier to 3.78 billion yuan, with the gross profit margin falling 3.25 percentage points to 15.4%, the company said this month. SAIC, China's largest carmaker by sales, owns 50% of Shanghai Volkswagen Co., which has been making Santana cars in China since 1985 and also assembles Volkswagen's Passat, Gol and Polo models. SAIC also owns 30% of Shanghai General Motors Co., which assembles Buick Excelle sedans and GL8 vans. Shanghai Auto owns 20% of Shanghai GM. (Bloomberg)