Chongqing Changan seeks 4b yuan from share sale
Chongqing Changan Automobile, China's fourth-largest carmaker, plans to raise up to four billion yuan (HK$4.54 billion) by issuing shares on the mainland to expand its economy car production.
The company will issue not more than a fifth of its existing share capital, it said in a statement to the Shenzhen stock exchange. The share price will be determined by the average closing price in the 20 trading days prior to the sale.
Chongqing Changan said the proceeds will be used to fund 4.37 billion yuan of investment projects, including 1.64 billion yuan towards additional production lines for economy cars, 2.14 billion yuan for expansion of economy car engines output and 590 million yuan for its research and development facilities.
The fund-raising plan comes as mainland passenger car demand continues to soar, with January sales rising 18 per cent from December to 1.32 million units and jumping 116 per cent year on year.
Spurred by tax cuts and other government stimulus measures, mainland car sales saw China widen its lead over the United States as the world's largest car market.
Rural residents enjoyed both a cut in car sales tax by half and a subsidy equivalent to 10 per cent of the selling price on economy cars - those with engines of one litre or less.
The combined discount amounted to 15 per cent, according to a Masterlink Securities research report. Together with government policies that boosted farmers' income, it helped propel economy cars to become the fastest-growing car segment last year.
In previous years, larger cars saw faster growth as many mainland car buyers saw cars as a status symbol and cars are less affordable to rural people.
Chongqing Changan said the expansion plans were in line with the central government's policy to push domestic innovation, upgrade technology and encourage consumption of small, fuel-efficient and environment-friendly cars.
The company last year produced 549,000 economy cars, a segment where it had a market share of 27.45 per cent.
It plans to build three production lines for economy cars with combined annual capacity of 220,000 units.
The company estimates the facilities, which will take 20 months to build, will be fully utilised in the second year and generate 339.76 million yuan of profit on 11.31 billion yuan of sales in the sixth year.
Meanwhile, its 36-month engine plant expansion project will allow it to make 420,000 more engines for economy cars per year.
In the fifth year after completion, the facilities are expected to yield 262.08 million yuan of profit on 4.03 billion yuan of sales.
The company needs to bolster its research and testing capabilities, having only invested 250 million yuan up to now. Chongqing Changan 'has zero facilities to carry out crash tests, material tests and driving tests,' the company said. 'Our product development capability not only lags that of the international giants but also domestic rivals.'
The carmaker's share price slid 1 per cent to 11.83 yuan yesterday.
Revving up
Demand for passenger cars on the mainland continues to soar
Sales of passenger cars increased to 1.32 million units in January, a year-on-year jump of: 116%
