HK-listed carmaker Geely plans further asset buys


By Daisy Ku

HONG KONG, March 25 (Reuters) - Privately-owned Chinese carmaker Geely Group plans to inject 46.8 percent of its remaining auto-related assets worth around US$242 million into Hong Kong-listed investment firm Geely Automobile Holdings Ltd , a company official said on Thursday.

The move is part of an ongoing plan by the Chinese firm to make a backdoor listing in Hong Kong to help it expand amid the increasingly competitive China market.

"Eighty percent of our shareholders agree that we should buy the remaining auto-related assets from Geely Group to avoid connected transactions," Lawrence Ang, executive director of Geely Automobile Holdings, told Reuters.

"The only concern is that the planned acquisition could dilute EPS (earnings per share)," said Ang, who until recently was an analyst covering the Chinese auto sector at Deutsche Bank.

A series of auto-related asset injections by Geely Group since April last year has transformed former software company Guorun into a sedan maker that owns 46.8 percent of two joint ventures with Geely Group - Zhejiang Geely Guorun Auto Co Ltd in Ningbo and Shanghai Maple Guorun Auto Co Ltd in Shanghai.

Geely Auto changed its name from Guorun earlier this month. Its shares have risen 77 percent over the past year.

Its latest acquistions could take place after Geely Auto releases its 2003 results in mid-April.

The joint ventures make low-priced sedans under the brands Maple, Merrie and Uliou, and the Beauty Leopard sports car.

Geely Automobile is buying several plants, including the Zhejiang province factory that makes the Haqing sedan, which costs just 32,000 yuan (US$3,865).

Foreign and domestic auto firms are investing billions of dollars to boost production in China, fueling fears of looming overcapacity and pressure to cut prices.

Smaller firms are expected to be forced out of business as the industry consolidates.

Two of the plants Geely Auto is buying will not commence production until 2005, which could dilute earnings, Ang said.

Geely Group has said it expects to sell 160,000 cars this year, double the 80,000 it sold last year. Ang said the group plans to expand its sales to 650,000 units in 2007, and one million in 2010, when it hopes to sell about 20 percent of its cars overseas.

The company will use bank loans and possibly issue new shares to help finance its expansion, Ang said.

Geely Group Chairman Li Shufu currently holds about 20 percent in Geely Auto.

The company competes in China with foreign giants led by Volkswagen AG , General Motors Corp and Toyota Motor Corp , as well as local players.

Unlike many of its Chinese competitors, Geely does not have a car making joint venture with an overseas firm.

Guorun proposed in January to change its name to Geely Automobile Holdings Ltd as part of the Chinese firm's backdoor Hong Kong listing.

Geely Auto's shares fell nearly one percent on Thursday to HK$1. The stock had gained over 27 percent in the month to Wednesday's close.

(US$=8.28 yuan)



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