BYD’s Chinese IPO started today, share prices may drop below opening

---

From Xinhua, scroll down for latest reports:

Investors started on Tuesday to subscribe to new shares of BYD Co. Ltd., the Chinese car maker backed by U.S. billionaire investor Warren Buffett, after the company set its Shenzhen share offering price at 18 yuan (2.8 U.S. dollars) per share a day before.

The company, which already has shares listed in Hong Kong, planned to sell up to 79 million yuan-denominated shares, or A-shares, in an initial public offering (IPO) on the Shenzhen bourse, according to a statement filed with the Shenzhen Stock Exchange (SSE) late Monday.

BYD chairman and founder Wang Chuanfu said the company aims to focus on new energy-related business while enhancing business in traditional cars and electronic products in an interview with the Xinhua-owned newspaper Shanghai Securities News published Tuesday.

“The strategic goal of BYD is to consolidate our global status as a leader of the secondary battery industry, develop into a leader in the sector of IT component manufacturing and assembling, and become a car maker with global competitiveness,” Wang said.

The IPO is being handled by UBS securities. Ding Xiaowen, managing director of UBS Securities investment banking department, identified BYD as a leading provider of all-round new-energy solutions, a leading Chinese car maker, and the world’s most competitive provider of mobile phone components and assembling services.

The value of investing in BYD also lies in its ability of “highly vertical integration and low-cost operation,” and “strong capabilities in technological research and development (R&D) and innovation,” Ding said.

In a statement to the SSE, the automaker, in which Buffett’s Berkshire Hathaway Inc has a 9.9 percent stake, said it planned to use the raised money to invest 400 million yuan in a lithium battery production project, 1.14 billion yuan in establishing a researching and manufacturing center, and 652 million yuan on expanding its auto unit projects.

The company’s planned IPO and new pledge to focus on battery and IT product R&D came at a time when China’s auto sales seem to be slowing after years of boom.

After overtaking the United States to become the world’s biggest auto market in 2010, China’s auto-sales growth has moderated since the start of this year as the government ended its stimulus measures that supported car purchases.

The company’s car sales rose 16 percent to 519,806 vehicles in 2010, decent growth in light of the global average but less than half of the average growth of 32.4 percent in China’s total auto industry.

In spite of a 17.8 percent increase in business revenues in 2010 compared with 2009, the Shenzhen-based company’s 2010 net profit fell by 33.5 percent from a year earlier to 2.52 billion yuan, due to fierce competition and a reduction in government incentives for auto purchases.

The company saw a decline in the profit rate of its traditionally competitive secondary battery business, which fell from 26.12 percent in 2009 to 19.77 percent in 2011.

Wu Jingsheng, BYD’s vice chairman, attributed the lower profit rate to an adjustment of the product structure in which sales of product with lower profits outperformed products with higher profits, and the rising material cost as well as a price drop in the secondary batteries.

CriEnglish later reports that share prices are likely to sell for less than their opening price by the end of the day:

Shares of BYD Co. Ltd., the Chinese automaker backed by U.S. billionaire investor Warren Buffett, which will begin taking subscriptions for its initial public offering Tuesday, are likely to fall below their IPO price in Shenzhen like many other recently listed companies, according to the executive business editor of “China Daily.”

BYD, which is already listed in Hong Kong, will raise a less-than-expected 1.42 billion yuan ($219 million) during its IPO on Shenzhen Stock Exchange, although it initially intended to raise 2.19 billion yuan. The company plans to sell its IPO shares at 18 yuan each down from the original price of 27 yuan, based on a statement it filed with the stock exchange.

Mark Hughes, Executive Business Editor of “China Daily,” said BYD’s move to lower its original IPO price was a good move, because the Shanghai and Shenzhen exchanges have tumbled about 15 percent since April high.

He added this was an indication that growth was slowing, with Italian fashion label Prada and luggage maker Samsonite raising capital that was much lower than anticipated in their respective IPOs in Hong Kong last week.

Despite such circumstances, BYD could not postpone its IPO to a later date, because it was legally committed to see it through, Hughes said.

Stella Lee, BYD’s Senior Vice President, said she would rather have waited until next year, but she was bound by the rules that govern IPOs.

Meanwhile, Hughes said he believed that shares of BYD were likely to fall below their IPO price as had happened with many other recently listed companies in China.

“Share prices in Hong Kong have fallen nearly 50 percent in about the last 10 months, and they’ve got rivals like General Motors and Nissan who are introducing cheaper models,” Hughes said. “And also China’s passenger car sales are past their boom. They had a brilliant time in the past two years, but in May the government ended tax incentives and subsidies, so that’s hit sales as well as there being a sort of saturation almost at the moment.”

Hughes also said the driving force for BYD to continue to attract investors depended on the price and quality of the new vehicles the company introduced.

“They are introducing a new series of electric vehicles in the next two years,” Hughes said. “Some of this IPO money will go towards the research and development of these vehicles, but a lot of analysts are saying that BYD attracts first-time car owners, and they’ve been undercut by their rivals, and they ought to be investing in technology to attract second-time car buyers rather than first-time (car buyers).”