Warren Buffett

BYD plans to sell A shares to raise 2.2b yuan

PUBLISHED : Thursday, 09 June, 2011, 12:00am
UPDATED : Thursday, 09 June, 2011, 12:00am

Mainland carmaker BYD will start price consultations with institutional investors today to kick off its A-share offering that aims to raise at least 2.2 billion yuan (HK$2.64 billion) for expansion.

The Shenzhen company, 9.9 per cent owned by Warren Buffett's Berkshire Hathaway, said the price would be set after the consultations end on June 16.

It plans to sell 79 million A shares, or 3.36 per cent of its enlarged capital, on the Shenzhen Stock Exchange.

BYD said in a preliminary prospectus on May 5 the proceeds would be used to fund new product development and expand facilities.

Based on its targeted amount of 2.2 billion yuan, the shares would be sold for at least 27.70 yuan each, a 44 per cent premium to its H shares.

The H shares closed 3.34 per cent lower at HK$23.15 yesterday. They have fallen about 60 per cent in the past year.

'BYD is facing temporary difficulties as it has to develop new models to make its products more value-added and increase profit margins,' said Kevin Huang, an analyst at car industry consultancy JATO Dynamics. 'After all, BYD is still relatively a good home-grown car brand compared with its domestic rivals.'

BYD's sales fell short of its target by 13 per cent last year while net profit dropped 33 per cent.

Fierce price competition in a slowing market has further dented mainland carmakers' profit margins.

In April, BYD's car sales dropped 11 per cent from a year earlier to 40,100 units.

According to the China Association of Automobile Manufacturers, nationwide car sales rose 2.8 per cent to 1.14 million units.

The mainland industry reported 32.4 per cent growth last year, with sales topping 18 million units, largely powered by government incentives to stimulate the economy and lure motorists into more environmentally friendly cars.

In 2009, BYD, which also makes batteries, benefited from strong sales of its model F3DM, the country's first home-grown hybrid vehicle, to post profit of 3.8 billion yuan, nearly four times higher than earnings in 2008.

It currently has 4.3 per cent share of the mainland market, the biggest among home-grown brands, according to business advisory firm AlixPartners.

BYD also has a 50-50 joint venture with Daimler to develop electric cars.