Samsung boosts China hopes with BYD stake

Samsung bought a $450 million stake in Chinese electric car maker BYD last week. Analysts think the move made sense for a company that has had previous China hopes dashed.

Samsung has had a tough time breaking into China's car battery market. But it took a step forward at the end of last week, when it bought a Rmb3 billion ($450 million) stake in electric car-maker BYD.

Samsung Electronics, one of the South Korean conglomerate's listed subsidiaries, was part of a group of six investors to take part in a primary share sale from BYD, which is backed by Warren Buffett’s Berkshire Hathaway.

The investment came after one of Samsung's battery-making subsidiaries, Samsung SDI, was excluded from a list of suppliers approved by the Chinese government for subsidies. LG Chem, which alongside Samsung SDI is one of the big two battery-makers in South Korea, was also denied approval — despite the fact that both companies produce batteries in China.

Both LG and Samsung have said they have had no explanation about their rejections. But Samsung, at least, appears to be ploughing on regardless. Samsung Electronics was the only corporation — and the only foreign entity — to join BYD's 250 million A-share placement on Friday. The other five investors were all Chinese fund management companies, including two affiliates of China Construction Bank and China Life Insurance.

The South Korean technology giant bought 52.3 million new shares at a price of Rmb57.4 per unit, giving it a 1.92% stake in the business. That helped BYD raise Rmb14.5 billion ($2.17 billion) from all six investors, according to a statement the company filed with the Shenzhen Stock Exchange on Friday.

Building a dream

Although Samsung does not have much of a track record when it comes to buying small minority stakes in large Chinese companies, getting closer to BYD is an obvious move, according to analysts. China's electric-vehicle battery market is growing rapidly. It already accounted for one third of the global market last year.

A closer relationship could work well for both companies, said analysts at Shenwan Hongyuan Securities. Samsung's increasing development of in-car entertainment, GPS and automatic driving technology could add to BYDs 'intelligent driving systems' push. On the other hand, BYD will give Samsung access to the Chinese market.

US technology companies, notably Apple and Google, have tried to shape the future of the auto industry with a focus on electric and self-driving cars. But Chinese players have been making their own push, albeit with less international press attention.

Ningbo Joyson Electronic, an auto electronics supplier little-known to foreigners, said in April it had agreed to buy two overseas firms with autonomous driving know-how for more than $1.1 billion. In the same month, Chinese online entertainment and technology group LeEco unveiled its first self-driving electric car in Beijing.

BYD plans to use the proceeds raised from the placement to fund an expansion in battery production, as well as research and development into new-energy vehicles, and to repay loans. 

Set up in 1995, BYD — the initials stand for “Build Your Dream” — focused on rechargeable batteries as its core business in its early years. It moved into the auto sector through an acquisition of then-struggling domestic auto maker Tsinchuan Automobile in 2002.

It soon rose from obscurity and hit headlines in international media in 2008 when Berkshire Hathaway bought 10% of BYD for $230 million. Berkshire still held that 10% stake before Friday's placement, which diluted it to 8.25%.

The Shenzhen-based BYD is now the world’s largest producer of battery-powered and hybrid vehicles by sales volume. It sold about 62,000 highway-capable new energy vehicles in 2015, beating Toyota, Nissan and even Tesla, according to its website.

BYD fell 1.63% to HK$51.35 in Hong Kong on Friday, while Samsung Electronics was down 1.75% in Seoul.

China Merchants Securities was the sole sponsor and a joint bookrunner of the transaction, alongside UBS, Goldman Sachs, CICC and Guosen Securities.

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