The listing of car parts-supplier Nexteer Automotive will offer investors an opportunity to hitch a ride on the Chinese passenger-vehicle market, say analysts.
But one of the biggest questions for the United States-based steering and driveline systems producer - which was acquired in 2010 by Pacific Century Motors (PCM), an investment arm backed by the Beijing municipal government - is how it can offset the downward pressure on selling prices of its products as slowing car markets in the US and Europe look inevitable.
Battered by a profit squeeze in its sector, Nexteer's net profit fell three basis points to 2.7 per cent last year, while gross margin stayed at 12.3 per cent. Sales fell 3.6 per cent to US$2.2 billion, even though the China market posted gradual growth.
After an employee restructuring plan that cost US$7.4 million last year, the company will launch three new electric power steering programmes in the second half "to mitigate the adverse impact of overall pricing pressure from customers", according to a preliminary listing document.
Gearing ratio, a measure of financial leverage, fell sharply to 289 per cent last year from 550 per cent in 2010, when General Motors sold the company to PCM.
Aviation Industry Corp of China, a state-controlled parts manufacturer, then acquired a 51 per cent stake in PCM in 2011.
Nexteer has 20 manufacturing plants, 10 customer services centres, and five regional engineering centres.
Mainland China's rapidly expanding passenger-vehicle market may be the key market in which it can grow its advanced steering business as more vehicles are required to comply with stricter emission controls. By switching to electric power steering systems from hydraulic ones, carmakers can produce cars that consume less fuel.
Nexteer seeks to raise up to HK$2.5 billion through an initial public offering by selling 720 million new shares, or 30 per cent of the enlarged share capital. It will take orders from retail investors on Thursday this week and pricing is scheduled for June 26, while trading is due to begin on July 3.
It plans to deploy 72 per cent of the proceeds into capital expenditure on new product programmes and expansion of manufacturing capacity.
Joining the lacklustre listing market, Macau Legend Development, a hotel-cum-casino operator, has started to take orders for its Hong Kong share sale worth up to HK$6.1 billion. It is scheduled to price the shares on Thursday, and they will begin trading on June 27.