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Chinese automakers mull IPO to fund national brand

Investors, who want to share the growth of the world’s second-largest auto market will have more choices as many automakers are lining up for initial public offerings, largely to help shore up their own-brand vehicle business despite a slumping stock market.

After churning out Accords and Audis for years, Chinese automakers, from Toyota Motor’s China partner to independent player Great Wall Motor, are working harder then ever to develop national brands, hoping to compete head-on with established foreign brands globally. “The big state auto groups have been mulling to go public for years, but restructuring always takes longer than expected,” said Zhang Xin, a senior industry analysts with Guotai Junan Securities. “Their costly own-brand strategy has now made IPO a must rather than a target.”

China South Industries Motor Co, that makes own-brand cars as cheap as 40,000 yuan ($5,720), has scheduled to debut in Hong Kong this summer, raising up to HK$4 billion ($513 million), its Vice President Deng Zhiyou told media on Sunday. The China partner of Ford Motor Co and Mazda Motor Co unveiled its first mid-range sedan along with a fuel-cell concept model at the Beijing Auto Show, amid repeated pledges by its top executives to further boost national brands. FAW Group, whose Red Flag sedan, once a favorite pick of Chinese state leaders, has been outshined by Audi made with its venture with Volkswagen is also keen to tap the capital market to bank roll the revival of national brands at a cost of 13 billion yuan.

The group, also in a tie-up with Toyota Motor Corp is still weighing different options, including buying out its car-making units FAW Xiali Automobile and FAW Car Co, an executive said. Guangzhou Honda, Guangzhou Automobile Industry Group Co’s venture with Honda Motor, announced a plan in July 2007, to develop cars bearing its own brand, becoming the first foreign car venture to develop a separate brand. Half of the funding, estimated at 2 billion yuan ($285.8 million) initially, would come from Guangzhou Automobile, which is preparing a share sale most likely in China before the end of the year, industry analysts said. Beijing Automotive Industry Holding had its first own-brand car named after the Chinese capital city. The maker of Mercedes-Benz and Accent cars in tie-ups with Daimler AG, Chrysler LLC and Hyundai Motor Co, aimed for a mainland IPO before the end of 2009, its Chairman Xu heyi was quoted as saying by local media last month.

 
MAKING A BET
Still, all the IPO candidates are wary about a persistent downtrend of China’s benchmark index that is now 49% below last October’s record peak after a sixfold jump in a two-year bull run. Fears that the market might be heading south further has prompted regulator to halt new share sale for a while, making gold miner Zijin Mining, approved two weeks ago, the first major IPO in mainland China since the debut of Railway construction in late February. “The market sentiment is not as good. But I believe most automakers would not hold off their IPO plans as long as they can get the green light,” Guotai Junan’s Zhang said. “They have to make a bet as you never know which way the market will go next.”

Great Wall Motor, China’s top sport-utility vehicle maker, said last October it planned to issue up to 121.7 million A shares in Shanghai, equivalent to HK$949.26 million based on its closing price on Friday. Its CEO Wang Fengying told media on Sunday the plan is unchanged and her company hopes to debut on the mainland within the year. “I am not too worried about the market as investors know they are buying into Great Wall’s future,” She said.

Lifan Group, China’s top motorcycle maker that is diversifying into car production, has applied for regulatory approval for a domestic listing this year, raising at least 1 billion yuan, its chairman said in late 2007. Still, a few, such as Chery Automobile, China’s fastest-growing independent car maker, had qualms about going public amid a volatile market. Its Chairman Yin Tongyao told Reuters on Sunday that an IPO remained on the agenda, but he has yet to nail down a timetable. “What are watching the market closely. We don’t want to be under priced.” (Reuters)