Weichai in bid to lift stake in associate
Heavy-duty engine producer to raise holding in truck maker for 684m yuan
Weichai Power, one of China's largest makers of engines for heavy-duty trucks, is to tighten its grip on a truck manufacturing associate for 684.75 million yuan.
Fresh from buying a substantial stake in Torch Automobile group in August last year, Weichai said yesterday it had agreed to raise its stake in the Shenzhen-listed company to 28.12 per cent from 12.69 per cent.
The deal will cement Shandong-based Weichai as the biggest shareholder of Torch and bolster its exposure to the production and sales of heavy-duty trucks and related parts.
It will also help fill a revenue gap arising from the departure of China National Heavy Duty Truck, Weichai's parent and major customer, which is seeking a listing in Hong Kong and will separate from Weichai.
The parent has recently switched to Weichai's rival for sourcing engines.
Weichai chairman and chief executive Tan Xuguang yesterday said the group would exploit further potential business opportunities and synergies with Torch in the near future.
'It is expected that the acquisition will contribute positively to the future development of the company,' he said.
The deal is also part of Weichai's efforts to strengthen ties with customers given that Torch's subsidiary, Shaanxi Heavy-Duty Motor, is one of China's top five heavy-duty truckmakers and a key customer of Weichai.
Mr Tan hoped the closer connection with Torch would allow it to expand further into vehicle parts production, procurement and sales activities overseas.
He said the purchase price represented the cost of investment, with the deal to be settled in cash and funded by internal resources.
Weichai raised its interest in Torch through a 45 per cent owned joint venture, Weichai Power (Weifang) Investment, whose only asset is the 28.12 per cent stake in Torch.
Weichai Power turned the joint venture into a wholly owned subsidiary by paying 373.5 million yuan for a 30 per cent stake it did not own in the joint venture from Shandong Haihua Group, 224.1 million yuan for an 18 per cent stake from Weifang Yaxing Group and 87.15 million yuan for the remaining 7 per cent from Longkou Golden Electrics.
Profit after tax of Weichai Power (Weifang) Investment stood at 2.09 million yuan for the period between August 2 last year and the end of December. Its net asset value was 1.24 billion yuan on December 31.
Last month, Mr Tan said Weichai Power maintained this year's sales target of 130,000 units after recording sales of 41,000 in the first quarter. The stock closed 3.78 per cent lower at $17.80 on Friday.