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Dongfeng raises US$500m in HK IPO
By Vincent Lam (China Daily)
Updated: 2005-12-01 06:31
HONG KONG: Dongfeng Motors, China's third-largest car maker, raised HK$3.97
billion (US$512 million) after it priced its initial public offering (IPO) at
HK$1.6 (US 20.5 cents) per share yesterday.
The proceeds of the IPO will be mainly used to repay debts.
Ten per cent of Dongfeng's shares were for retail subscription. They were
oversubscribed by 100 per cent, while the rest, for institutional investors,
were 6 times oversubscribed.
Dongfeng will be the biggest overseas-listed carmaker on the mainland when
its shares begin trading in Hong Kong on December 7.
The Wuhan-based company, which makes cars under ventures with Nissan, Honda
and Citroen, floated its shares at 9.1 times the forward price-earnings (P/E)
ratio, compared with the 8.5 P/E ratio of its rival Denway Motors.
Dongfeng's profit fell by 11 per cent to 660 million yuan (US$82 million) in
the six months ending on June 30, as higher material costs reduced margins.
Executive Director and President Liu Zhangmin promised investors that the
company's dividend payout ratio after the share listing would be not less than
15-20 per cent.
Chinese carmakers face fierce competition in the world's third largest
vehicle market, with profit margins halved for most of the car markets this
year.
According to official estimates, sales of passenger cars may grow by about 10
per cent in 2006, a massive fall from the 76 per cent surge in 2003 and the 50
per cent increase in 2002.
Listing sponsors China International Capital Corp Ltd, Deutsche Bank, and
Merrill Lynch Far East were all confident Dongfeng's listing would make a
satisfactory debut next week.
The firm plans to invest 21.8 billion yuan (US$2.1 billion) in the next
couple of years to boost annual capacity by 65 per cent, up to 1.233 million
units by 2008. The aim is to maintain its leading position in the industry.
"Even though the net proceeds of the public offering will mainly be used for
the reduction of debt, the company's gearing ratio after floatation will remain
at a normal level for international peers," Chairman Xu Ping stressed.
"The capital expenditure will be funded through joint venture firms which
have a strong cashflow in order to support production expansion," Xu said,
downplaying market concern about the company's liquidity.
According to the company's offering document, Dongfeng aims to boost sales to
make up for declining margins, and to maintain its 13 per cent share of China's
vehicle market.
(China Daily 12/01/2005 page9)
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