BYD Co., the Chinese carmaker backed by Warren Buffett, won regulatory approval for a share sale in China as it seeks funds to reverse falling deliveries in the world’s biggest vehicle market.
The China Securities Regulatory Commission approved BYD’s planned A share issue, the company said in a Hong Kong stock exchange filing yesterday. BYD, already listed in Hong Kong, plans to offer as many as 79 million shares on the Shenzhen stock exchange, it said on May 5.
Shenzhen-based BYD is raising the funds to expand after its sales fell for nine straight months through April, and amid rising competition as carmakers such as General Motors Co. and Nissan Motor Co. introduce cheaper models. Industrywide deliveries have also slowed after China ended tax incentives and subsidies that helped the country overtake the U.S. as the world’s largest auto market.
“BYD has urgent demand for capital to fuel its expansion,” said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities Co. “The auto industry is a capital intensive one, and automakers need to keep investing to maintain their position amid competition.”
BYD’s stock has declined 60 percent in the past year, closing at HK$28.20 yesterday. That compares with a 14 percent gain in the benchmark Hang Seng Index. The Hong Kong exchange is closed for a public holiday today.
The automaker headed by Chairman Wang Chuanfu will use 1.14 billion yuan of the proceeds from the share sale for automobile research, development and production facilities in Shenzhen, it said on May 5.
The company will spend 652 million yuan ($100 million) to expand its auto product and accessories unit and 400 million yuan on a lithium-ion battery production project, BYD said.
MidAmerican Energy Holdings Co., a unit of Buffett’s Berkshire Hathaway Inc., bought 9.9 percent of BYD in September 2008. The carmaker raised HK$1.4 billion ($180 million) in an initial public offering in Hong Kong in July 2002 by selling shares at HK$10.95 each.
BYD car sales fell 11 percent to 40,100 in April, the company said. The automaker missed its 600,000 unit sales target by 13 percent last year, and cut prices on its models in February to boost deliveries. It had earlier revised the sales target down from 800,000 vehicles.
China’s passenger-car sales to dealers in April rose 2.8 percent from a year earlier to 1.14 million units, the China Association of Automobile Manufacturers said today.
“With sales plunging, IPO pricing will be a key to make BYD attractive to investors,” Guotai Junan’s Zhang said.
Overall sales growth in China this year may fail to reach a previous estimate by China Association of Automobile Manufacturers for a 10 percent to 15 percent increase, Vice Chairman Dong Yang said at a briefing last month.
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