BAIC Motor scraps IPO amid tepid investor appetite for car stocks

PUBLISHED : Thursday, 12 June, 2014, 1:10am
UPDATED : Thursday, 12 June, 2014, 1:10am

Chinese carmaker BAIC Motor, partly owned by German giant Daimler, put on hold its US$2 billion share sale in Hong Kong, people familiar with the situation said yesterday, citing concerns over the market's appetite for large deals after the collapse of the WH Group initial public offering.

As a result, US banking giant Goldman Sachs, one of the key managers of the deal, has pulled out from the listing plan after spending several years advising the state-owned company.

The Beijing-based firm, which manufactures Hyundai and Mercedes-branded vehicles for the mainland market through joint-venture agreements, decided to refrain from turning in the listing application to the city's stock exchange after it hosted a meeting with all the underwriters in Beijing on Tuesday.

BAIC, the country's fifth largest carmaker, has been trying to float its shares for several years, but investor demand for car stocks remains tepid after more mainland cities imposed restrictions to curb consumer demand due to problems with choking air pollution and congestion.

"The issuer's decision to halt the flotation plan was partly due to a more realistic understanding of current market conditions, where investors are looking for bargain deals," said one of the people who attended the meeting with the management. "A planned price-earning ratio of 18 times is way too far from the average level among the publicly traded auto stocks, which are being priced at 10 times earnings," the source said.

The firm would reconsider submitting an application for listing in November, which has essentially pushed the deal back to the first quarter of next year, bankers said.

Citic Securities, Deutsche Bank, HSBC, and UBS were the managers for the transaction.

A spokeswoman for BAIC declined to comment.

BAIC Motor is the passenger-vehicle unit of state-owned Beijing Automotive Group. Shares of mainland car dealers dropped 10 to 17 per cent this year, reflecting the poor earnings visibility of the sector, analysts at Citi said in a report.

Market participants are looking into the US$400 million listing of China Car Rental, in which US private equity firm Warburg Pincus has a stake, as a gauge of the demand for car-related offerings.

Policy measures have started to tackle the mainland's notorious smog caused in part by vehicle emissions. At least six cities, including Hangzhou in Zhejiang province, joined Beijing and Shanghai in imposing quotas on vehicle registrations.

Late last month the State Council announced a pilot programme to take about five million vehicles that do not meet the emission standards off the road by the end of 2014.