Dazhong pulls off rights issue

SHANGHAI Dazhong Taxi Co says it has pulled off the first successful rights issue for B shares in the Shanghai market - a sharp contrast to Shanghai Vacuum's attempts to launch a rights issue last March.

The application period for the Dazhong issue, designed to raise 125 million yuan (about HK$170 million), ended on Friday.

Dazhong chairman and general manager Yang Guoping said: ''Nearly everybody has taken up their rights.'' The company had made available 22.5 million B shares - denominated in US dollars and sold only to foreign investors - to its investors - plus nine million yuan-denominated A shares for local players.

The offer was made barely a year after Dazhong's initial public offer and would almost double the company's capital base and the number of issued shares.

This could have left it open to criticisms of an overly hasty return to the market like Shanghai Vacuum, which suffered the unhappy experience of having to withdraw its first attempted rights issue offer in Shanghai's B share market.

However, unlike Shanghai Vacuum, Dazhong - Shanghai's second biggest taxi fleet operator - is proving to be highly popular with foreign investors.

It features at the top of many broker's buy recommendations. This probably accounts for Dazhong B-share prices rising by about 40 per cent in the past month.

Mr Yang said the company was very cautious in laying the groundwork for its rights issue, conducting a survey of investors by phone, fax and through brokers, before announcing the offer.

The idea of a rights issue was subsequently unanimously endorsed at a shareholders meeting.

Mr Yang said that, despite the dilution of the equity - a consequence of the rights issue - earnings per share should still double by year's end.

The issue will also have the effect of increasing public holding in Dazhong and reducing the level of state control.

Since state shareholders waived their rights to take up the issue, their control will fall to 43 per cent. Foreign investors, on the other hand, will have a 39.8 per cent stake, while local individual and company investors will have 17.2 per cent control.

As such, Dazhong will have the highest percentage of foreign private holding among China shares and take the state's share of equity to the lowest level among Shanghai-listed stocks.

Dazhong is expanding its 1,300-strong taxi fleet, aiming to have 3,000 cabs on the road in five years. It is also investing in taxi operations in other cities and has secured an exclusive franchise from the US-based Hertz Corp to operate a car-hire service in eastern China.

The car-hire company has, so far, bought 100 cars.

Dazhong is also diversifying into car-repair sector and has started making heavy property investments, which according to Mr Yang, have been unaffected by China's current austerity programme.