HK float for Guangzhou Auto

Firm plans a backdoor listing through its Denway unit

Guangzhou Automobile Group Co, the Chinese partner of Japanese car giants Toyota and Honda, plans to sell shares in Hong Kong, seeking foreign capital to boost its domestic expansion.

China's sixth-largest automaker will go public in Hong Kong through a backdoor listing using its Denway Motors unit, Denway said in a statement to the Hong Kong Stock Exchange on Friday.

However, the listing would not offer shares for public subscription, said Denway.

Denway shares, which doubled last year, jumped 7.58 percent to HK$4.97 in Hong Kong on Friday after the announcement and amid expectations Guangzhou Auto would pay a premium to take it private.

Guangzhou Auto now holds a 37.9 percent stake in Denway, a Hong Kong-based investment company controlling units and associates engaged in vehicle manufacturing and trading, according to the company's website.

Guangzhou Auto will also exchange shares for stock in Denway Motors Ltd which may or may not be at a premium to Denway's current trading price, said Denway, adding that the ratio of the share exchange would be determined after the Hong Kong bourse approves the listing.

Guangzhou Auto submitted an application for a share sale to Hong Kong's stock regulator on Jan 19, according to the statement.

"A backdoor listing would not generate any cash for the moment, but Hong Kong is obviously an ideal funding platform for the automaker in the long term," John Zeng, an analyst with IHS Global Insights, was quoted by Bloomberg as saying.

Such a listing would also allow Guangzhou Auto to simplify its structure for investors by taking away its listed Denway unit, and replacing it with shares in the parent company.

Last year, Guangzhou Auto started aggressive expansion initiatives in the mainland in the hope of raising its competitive edge among the over 100 industry players across the country.

In May, it bought a 29 percent stake in sports utility vehicle maker Hunan Changfeng Motors Co to become the firm's biggest shareholder, promising to triple its annual production capacity within three years.

The company also signed a preliminary agreement last year to join hands with Hangzhou-based Gonow in the production of microbuses. The two firms are expected to set up a 50-50 joint venture in Zhejiang province, with an annual production capacity of 250,000 units.

Guangzhou Auto said late last year that, together with its partner Honda, it plans to boost the production capacity at their manufacturing facilities in Guangzhou.

In July, it signed a contract with Italian auto conglomerate Fiat Automobiles SpA, its third international partner, to form a 50-50 joint venture, to produce cars and engines starting this year, with a total investment of over 400 million euros.

Guangzhou Auto sold 606,600 vehicles last year in the world's biggest auto market, a rise of 15 percent year-on-year.

(China Daily 01/23/2010 page9)