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SCMP Reporter

The mainland carmaker sizes up investment bankers and may pick  its public listing advisers this week

Shanghai Automotive Industry Corp (SAIC) could select investment banks as early as today for a public listing that may raise as much US$2 billion, bankers say.

Merrill Lynch, Morgan Stanley and UBS were among those shortlisted to make final pitches for the deal in an all-day meeting in Shanghai yesterday.

SAIC management told them that it would make a final decision 'by the end of the week'.

Bankers said neither Goldman Sachs nor Citigroup was present at yesterday's meeting.

The pitches were heard by a committee of five, consisting of the company's chairman, president, vice-president of finance, and two  officials from the Shanghai city government.

After the presentations, the committee peppered bankers with a host of questions about the size, timing and location of the  initial public offering, none of which had been decided, although observers said a listing was likely  in the first half of next year.

They also pressed bankers for details on how the banks  would use the company's two manufacturing joint ventures with General Motors  and Volkswagen to market the IPO.

Each of them separately owns 50 per cent of the joint ventures with SAIC, but neither has publicly commented about the proposed SAIC  share offer, referring questions to the Shanghai company.

SAIC does not release its profits, but bankers estimate that it earned as much as US$1 billion last year.

At an earnings multiple of  10, the resultant  market capitalisation of a listing could reach US$10 billion.

Analysts said the size of the IPO would  largely  depend on SAIC's expansion plans. 'It depends on their capex needs,' one banker said. 'But there's more than enough investor demand for SAIC shares.'

The capital will be important to SAIC as it jockeys for position in China's increasingly crowded and competitive car market.

Given its size and the importance of the  sector, SAIC was likely to pick two foreign banks and one domestic bank to handle the listing, bankers said.

China International Capital Corp (CICC), 34.3 per cent owned by Morgan Stanley, is often cited as  a probable candidate for overseas listing of Chinese companies.

But CICC already has the mandate for the IPO of SAIC's main competitor, Dongfeng Auto, and is therefore likely to be  ruled out.

The same applies to Merrill Lynch, which, along with Deutsche Bank, is  involved in the Dongfeng IPO.

SAIC was trying to take advantage of a window of opportunity for listing while it still held a dominant share  of the car market, analysts said. About one in every three passenger sedans sold in the mainland  is assembled in an SAIC joint venture.

Chinese  car stocks are down as much as 50 per cent since the beginning of the year, as investors fret over declining sales growth, overcapacity, fierce competition and a clampdown on bank credit for vehicle loans.

General Motors is investing US$3 billion to triple capacity to 1.3 million vehicles a year, FAW is doubling capacity to 1.6 million in 2008, and Toyota hopes to sell one million units by the end of the decade.

In May, vehicle sales slipped 7.1 per cent  over April to 164,852 units, the third straight monthly decline.



SAIC gears  up as banks  make IPO  pitch stop