Weichai Power cleared to split from parent amid souring ties

PUBLISHED : Friday, 24 March, 2006, 12:00am
UPDATED : Friday, 24 March, 2006, 12:00am

Hong Kong-listed truck engine producer Weichai Power has gained approval to split with its parent company - China National Heavy Duty Truck Group (CNHDT) - which is preparing for a red-chip listing.

The parent company's stake in Weichai will be transferred to an administrative unit of the Shangdong provincial government, according to a filing with the stock exchange yesterday,

The parent company is one of the five largest customers of the group, with its sales and purchases reaching 62.6 million yuan and 1.72 billion yuan, respectively, in 2004.

After the transfer, the Shandong government will become the single largest shareholder in Weichai, with a 23.53 per cent stake.

Analysts said there were too many complicated related-party transactions between the two groups. These transactions were not stated clearly in Weichai's 2003 listing prospectus and could present problems for CNHDT's listing plans, they said.

A report from China Capital International in January revealed that Weichai had stopped supplying engines to CNHDT in December last year after the parent had turned to rival supplier Hangzhou Motor Engine Factory (Hangqi).

Weichai has been seeking to buy Hangqi since 2004, but it was unable to gain approval from from China National Heavy Duty Truck.

The group said in the stock exchange announcement that Weichai and CNHDT had entered into a framework agreement in September 2004 in relation to the proposed acquisition of assets from Hangqi with a refundable deposit of 80 million yuan.

Weichai is reserving its right to take action against China National Heavy Duty Truck for its alleged failure to fulfil its legal obligations under the agreement.