Denway shares plunge 24pc on HK$25b privatisation bid

PUBLISHED : Thursday, 20 May, 2010, 12:00am
UPDATED : Thursday, 20 May, 2010, 12:00am

Guangzhou Automobile Group's newly announced plans to list in Hong Kong by July may encounter a speed bump after the firm's bid to delist Denway Motors triggered a case of share-price whiplash yesterday.

Shares in Denway plummeted 24 per cent after a HK$25 billion all-stock privatisation bid by parent Guangzhou Automobile (GAC) came up short with investors.

GAC, the mainland's sixth-largest carmaker, has joint ventures with Toyota Motor Corp, Honda Motor and Fiat and announced yesterday it plans to list in Hong Kong in July - a deal that has been in the works for at least the past four years.

Privatising Denway, a red chip listed in 1993 whose main asset is GAC's 50 per cent stake in the Honda venture, is a crucial step in getting the parent company listed. But investors appear to have baulked at GAC's all-stock offer, which was announced yesterday morning and values Denway at up to HK$5.49 per share - a premium of up to 22 per cent over the last trading price before the deal was announced.

Denway's market value was slashed by HK$8.1 billion yesterday to HK$25.6 billion. The shares, which had been suspended from trading since April 28, shed HK$1.08 apiece to finish at HK$3.41. That was a 24 per cent drop from three weeks ago.

State-owned GAC, which already controls 37.9 per cent of Denway, offered to issue new shares to Denway's other shareholders on the basis of one GAC share for every 2.64 Denway shares held.

'Due to the recent market correction and dilution following privatisation, this deal does not look attractive,' Nomura analysts led by Yankun Hou wrote yesterday in a note.

The mainland last year overtook the United States as the world's biggest car market, and GAC prides itself on being No1 in both production and sales of mid- to high-end sedans. Honda Accords and Toyota Camrys accounted for more than half of the 603,509 passenger cars sold by GAC last year. In March, the company formed a new joint venture with Fiat that plans to launch production next year.

While production capacity at the Honda joint venture, held through Denway, has been flat for the past three years, plans at the parent level call for a significant ramp-up going forward.

GAC said yesterday it plans to grow capacity from 909,000 cars last year to 1.01 million units this year and 1.15 million next year.

Because the planned Hong Kong listing is being conducted 'by way of introduction' involving a share swap, there will not be any listing proceeds for GAC, but it will open a new channel for future fund-raising.

'The key purpose of the listing is to add liquidity to the GAC H shares and provide GAC with greater access to international capital through its listing platform,' the company said yesterday in a stock exchange announcement.

However, GAC chairman Zhang Fangyou sought to play down this aspect of the deal, telling reporters yesterday: 'Financing is not our major purpose for this transaction.'

The massive slump in Denway's share price yesterday was likely down to investors who were expecting a richer offer from GAC or who baulked at the lack of a cash component to the proposed buyout, which is expected to be put to vote before Denway shareholders next month.

The deal values GAC, whose shares would be used to acquire Denway, at up to 50 billion yuan or 13.3 times this year's forecast net profit of 3.76 billion yuan, based on a report by adviser Anglo Chinese Corporate Finance.

The biggest shareholder in Denway after GAC is emerging markets investor Templeton Asset Management, which has a 9.5 per cent stake.

Templeton executive chairman Mark Mobius did not respond to phone calls or e-mails as of press time yesterday.

Value crunch

Yesterday's sell-down reduced

Denway's market value by, in HK$: $8.1b