China's GT Tyre to list in Hong Kong

Credit Suisse First Boston prepares to list China''s largest tyre manufacturer.

GT Tyre, otherwise known as Grandtour Tyres, is planning to join a growing list of Chinese companies still hoping to list in Hong Kong towards the end of the first half despite the onset of a weaker market tone. CSFB has the mandate for the IPO, which is likely to raise upwards of $400 million.

GT group's Chinese operations were founded in 1993, but the company has a long history in Singapore where it is headquartered. Since its foundation, the China business has expanded through a mixture of organic and non-organic growth.

The latter has been particularly prominent over the past two years through the purchase and attempted restructuring of ailing state-owned tyre manufacturers. In 2002, for example, GT acquired Chongqing Zhongce Tyre and Chongqing Tyre, followed by Hualin Tyre in 2003.

These purchases are said to have helped propel GT to the top of the domestic rankings above Triangle Tyres (a Goodyear joint venture) and Chengshan Tyres (a Taiwanese JV). Back in 2002, GT was listed as the world's 18th largest tyre manufacturer with export income of $371 million, up from $280 million in 2001.

Figures for 2003 are not yet available. However, specialists say a re-organization of the company and consolidation of acquisitions may have resulted in sales of up to $900 million. If correct, this would place GT slightly below Korea's Hankook Tire, one of the world's 10 largest manufacturers with sales of $1.3 billion during 2003.

GT has also recently hit the headlines in China because of its sponsorship of the country's first team to try and crack Formula 1 - Shanghai FRD Grandtour Tyre Team.

The IPO seems likely to be pitched as a new angle on the auto growth story and diversification play away from companies such as Denway Motors, Brilliance China, Great Wall Auto, Chongqing and Qingling Motors. Tyre manufacturers not only derive income through the sale of new cars, but also from significant replacement demand.

The poor state of many roads on the Mainland means that wear and tear rates are high and many truck drivers prefer more expensive radial tyres because they can bear far heavier weights. It has been reported that Chinese haulers typically load up trucks designed to carry five tons with up to 20 tones in weight.

Shares of Hong Kong listed Chinese car manufacturers have been trending down all year with the exception of Denway Motors. Great Wall Auto, which listed in December at HK$13.30 per share, closed yesterday (Thursday) at HK$12.70. Brilliance and Qingling, which hit respective highs of HK$4.85 and HK$1.76 at the turn of the year, are now trading at HK$3.425 and HK$1.39.

In terms of valuation, the sector currently spans Brilliance at 8.5 times 2004 PE and Qingling at15 times. Denway is trading around 12 times and Chongqing around 11.

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