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Independent brands’ IPO rush

Inspired by the explosive growth last year, an increasing number of Chinese independent automakers are maneuvering for public listing in 2010, while at the same time setting ambitious goals for sales and capacity expansions.

Chongqing-based Lifan Industry Group is planning IPO on the domestic A-share market, eying ¥1-¥3 billion ($145-$435 million) capitalization to fund its automobile and motorcycle manufacturing businesses.

Hong Kong-listed Denway Motors Ltd. announced in January that its parent Guangzhou Automobile Group Co., Ltd. (GAC) had submitted application for listing on the Hong Kong Stock Exchange (HKSE). GAC has poured ¥6.8 billion in phase one of its independent car project and plans to roll out a mid-level sedan before the 16th Asian Games to be held in Guangzhou this November.

Chery plans to pump ¥15 billion into its new energy vehicle project, capacity expansion and construction of key parts assemblies before 2012. The company has completed a financial restructuring and is reportedly prepping its long-awaited IPO, waiting for approval from China’s Security Regulatory Commission.

Zotye Auto, another local private carmaker, hopes to raise ¥720 million for its Shanghai IPO by selling a 20-30 percent stake to a government investment fund in Suzhou of Jiangsu Province. A Zotye executive who declined to be identified said the deal was expected to be done in late February.

Unlike bank loans, stock market provides not only interest-free fund to capital strained automakers, but also financial clout for future growth. Industry experts believe public listing will also help build a better management system for private businesses to ensure long-term development.

However, public-listed companies are required to disclose detailed financial and operational information to protect investors’ interests. Transparent information may reveal business strategies to rival companies, putting them into a disadvantageous position.

For capital-starving Chinese independent automakers, public listing is no doubt an attractive route to access the capital market. But their success hinges largely on a fundamental factor: if China’s auto market continues its expansionist mode seen in 2009. We should not forget that several of the companies mentioned above were forced to delay their IPO plans in 2008 as the market declined. Even with the success of IPOs, there will still be the issue of whether the companies can realize their capitalization goals when market competition intensifies, which seems unavoidable in the coming years.

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