Denway enters new ventures

Carrie Lee

CARMAKER Denway Investment will pay about $42 million for majority stakes in two vehicle component manufacturing joint ventures in Guangzhou.

The company also plans to introduce an instalment payment scheme - one of the first in China - to boost sales.

''The new joint ventures will enable Denway to increase the proportion of domestically made components in its cars, trucks and buses. That will reduce production costs,'' said managing director Xie Gancheng yesterday.

About 80 per cent of the production of the two ventures will be sold to Guangzhou Peugeot and other vehicle manufacturers in China, with the remainder for export.

The two ventures make suspension and ignition systems.

Denway will pay $19.89 million for a 51 per cent stake in the suspension maker, which will produce 860,000 sets of suspension springs and 10 million valve springs a year when fully operational.

The plant, now being built, is scheduled to be completed this year.

In the other venture, Denway has paid $21.86 million for a 60 per cent interest.

The venture will produce ignition distributors, coils and controllers, and other electrical parts for vehicles and motor-cycles.

It will have a capacity of 800,000 distributors, one million coils and 600,000 controllers a year.

A site is yet to be chosen for the factory, which is expected to be ready by the end of next year.

''As both new companies are entitled to preferential tax treatment granted to joint-venture enterprises, Denway group profit margins will be further increased,'' said Mr Xie.

Group vice-chairman Liu Benzhuang said Denway planned to introduce an instalment scheme for retail sales this year.

The group is now diversifying into retail business.

''We expect the scheme to help increase our retail sales by at least 10 per cent,'' Mr Liu said.

Denway is considering setting up a joint-venture company to manage the scheme.

It is seeking co-operation from financial institutions such as the Bank of China, the Bank of Industry and Commerce and Hua Chiao Commercial Bank.

But the banks had not shown much enthusiasm because of the country's austerity measures, Mr Liu said.

He also said the mainland's tax reform would not affect the company as the Government had agreed to refund, until 1998, to joint-venture enterprises set up before the end of last year tax for which they would not have been liable under the old system.

Mr Liu said the group's plan to expand its production capacity might be financed through a share listing on the mainland. But he said nothing had been finalised.

The removal of car purchase quotas for enterprises is expected to boost Denway's sales.

Last month's abolition of a fund to which every car buyer had to contribute 25,000 yuan (about HK$22,150) and the Government's reluctance to grant permits to new carmakers may also benefit the company.

Yesterday was the first anniversary of the listing of Denway shares on the Hong Kong stock exchange.