Chinese IPOs

Great Wall Motors delays $500 million IPO

Chinese carmaker Great Wall Motors worries that the current market volatility will hurt its IPO price.
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Great Wall Motors' longest model: the Hover, described as fashionable and personal
<div style="text-align: left;"> Great Wall Motors' longest model: the Hover, described as fashionable and personal </div>

Great Wall Motors, a Chinese maker of sports utility vehicles and pick-up trucks, has announced that it wants to “choose a better time” for its planned Rmb3.17 billion ($500 million) share sale in the A-share market, citing the current volatility as a reason for delaying the deal.

The company, which is based in Baoding in northern China and listed in Hong Kong, said earlier this month that it would issue 304 million A-shares, or 10% of its enlarged share capital, to raise funds for expansion, according to an IPO prospectus filed to the China Securities Regulatory Commission (CSRC).

The group, which has said it hopes to raise Rmb3.17 billion, planned to set the price range for the offering on September 15 and start taking orders the following day. However, Great Wall’s management said it will wait for markets to improve before going ahead with the offering, Chinese media reported.

The company blamed its decision on stock market volatility in Shanghai, where the index has fallen nearly 12% so far this year, but industry analysts say there are other factors putting investors off.

After expanding aggressively to catch up with China’s booming demand for cars, Great Wall’s debt ratio increased to 56.8% in the first quarter of this year from 34.4% at the end of 2008. Its debt amounted to Rmb14.9 billion during the first three months of 2011. At the same time, the government’s monetary tightening measures, aimed at keeping inflation in check, have put the brake on runaway demand growth.

Car sales stayed strong during the first half of last year, after the country overtook the US as the world’s biggest auto market in 2009, but the rate of growth started to weaken during the second half of 2010 when the government withdrew stimulus measures aimed at encouraging car purchases.

BYD, a Chinese electric carmaker that entered the spotlight when Warren Buffett invested in the company, said its profit fell 84% in the first quarter of this year on weaker sales and growing operational costs.

Great Wall said it expects the IPO price will be no less than 90% of its Hong Kong-listed shares. It plans to use the proceeds to fund a project that could help it to double its annual production output to 800,000 units.

Some 60 million shares, or 19.7% of the offering, will go to institutional investors, and the remaining 80.3% is earmarked for retail investors.

Great Wall said last month its first-half net profit more than doubled from a year earlier to Rmb1.81 billion thanks to a higher gross profit margin. Revenue grew 50% from a year earlier to Rmb13.7 billion helped by increased sales, the company said in a statement, but its sales target of 500,000 units for 2011 is considered optimistic.

This is Great Wall’s second attempt to list shares on the A-share market. In mid 2008, the company applied for a listing to the CSRC but was rejected.

About 12% of Great Wall’s revenue comes from overseas, mostly in other emerging markets. It plans to start car production in Bulgaria by the end of 2011. Great Wall has hired Guotai Junan Securities to manage its Shanghai IPO.

¬ Haymarket Media Limited. All rights reserved.
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