Geely bid for stake in chairman's plant raises queries
Hong Kong-listed mainland carmaker Geely is acquiring a 53 per cent stake in a manufacturing plant owned by the group's chairman, Li Shufu, by issuing zero-coupon convertible bonds.
However, analysts doubted the feasibility of the acquisition.
Alex Fan, the head of China research at Daiwa Institute, said Geely was a back-door listing in 2003 with the identity of an associate company.
With the injection of new assets into the company, the substantial shareholding might exceed 50 per cent.
This might lead to a change in the company's identity to that of a foreign company listed overseas, which needs approval from the central government.
'Of course, we have to wait to see what Geely does,' Mr Fan said. 'If the announcement clearly states the group is acquiring the assets from the chairman, that would be a significant issue as central government approval is needed,' he said.
'If the deal is not approved by government, those funds raised in the bond issue could be just deposited in the bank,' Mr Fan said.
Nelson Lam, an accountant from Nelson & Co, said that according to mainland company law, if an associate company held more than a 50 per cent stake, its identity needed to be changed as a subsidiary company of the parent. In this case, there would be a full consolidation of the company.
The difference between an associate and a subsidiary company is that there should be a clear balance sheet for the subsidiary company.
Geely was suspended from trading yesterday pending an announcement related to the bond issue. It is expected the group would issue $771 million in five-year zero-coupon convertible bonds priced between 90 cents and 97.2 cents, a 25 per cent to 35 per cent premium to the counter's closing price.