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Christine Chan

CHINA'S sedan and truck giant, China First Automobile Group, is to buy a 51 per cent stake in Shenyang Jinbei Automobile Co for 570 million yuan (about HK$504.4 million).

  Jinbei, which makes vans, has A shares listed in Shanghai and, with an associate company, indirectly lists in New York through a holding company, Brilliance China Automotive Holdings.

  Plans of the acquisition were reported by mainland newspapers yesterday, with agreement to be formally signed tomorrow in the northeastern city of Shenyang.

  Changchun-based First Automobile was paying 1.15 yuan a share to Shenyang's state assets bureau for 495.62 million shares in Jinbei, said Wang Gaojia, Jinbei's director for public affairs, yesterday.

  'The transaction has been approved by the (State Council) Securities Policies Committee, the national administrative bureau of the state-owned property and other relevant authorities in the car industry,' he said.

  Following the disposal, Shenyang's state asset bureau will be left with a 7.6 per cent stake in Jinbei.

  The remaining shares will be held 12.6 per cent by domestic institutions and 28.8 per cent by individual A shareholders.

  Mr Wang said the money raised would be redirected into the company.

  A Hong Kong-based analyst with a United States securities house said the acquisition marked the beginning of a series of mergers in China's motor industry.

  'It appears that smaller companies have to merge with bigger ones in order to survive,' he said.

  'The deal appears to be logical to both sides, as Jinbei is looking for biggest backing in order to get government support while First Automobile is to diversify,' he said.

  The 42-year-old First Automobile has joint ventures with German car maker Volkswagen. It is one of China's top trio of vehicle conglomerates which the government hopes to turn into a Chinese version of Detroit's big three.

  The other two are Wuhan-based Dongfeng Motor Corp, also known as the Second Automotive Works, and Shanghai Automotive Works.

 Dongfeng works with Citroen of France and Shanghai Automotive with Volkswagen.

  Mr Wang said the self-motivated merger was in line with the country's industrial policies for the car industry.

  'The government plans, by the end of the century, to set up two to three corporations and six to seven backbone enterprises in the car sector.

  'It is hoped that the enlarged entity will have a production capacity of a million vehicles a year by the end of the century,' he said.

   Jinbei makes 50,000 vehicles a year, mostly vans with Toyota parts, although it has a capacity to produce up to 70,000 vehicles.

  First Automobile makes about 200,000 vehicles a year, 80 per cent being Audi and Jetta trucks, using Volkswagen technology.

  By taking Jinbei under its umbrella, First Automobile will boost its production capacity and diversify its product category, reinforcing its aim to dwarf other mainland car manufacturers.

  If everything goes according to plan, the enlarged First Automobile would take on a new name to reflect its new composition, China First Automobile Jinbei Co, said Mr Wang.



Car giant buys van-firm stake