Chery, With New JV, Heads to Market 捷豹路虎合资项目获批 奇瑞欲重启IPO
More than a month after struggling carmaker Chery first told the world that its joint venture with Jaguar Land Rover had received a government green light (previous post), China’s state planner has come out and announced its formal approval of the deal. But what caught my attention from the latest news reports were some of the details about the new venture’s plans, along with the more intriguing revelation that Chery is racing ahead with plans for an IPO to fund the project.
If Chery indeed moves forward with an IPO, it will be extremely interesting to watch how the market greets the offering for this former high-flying company which has fallen on difficult times as China’s domestic car brands struggle to compete with their savvier international rivals. Such an offering could come in either Hong Kong or Shanghai, though Chinese automakers seem to prefer the former, perhaps reflecting the global aspirations that many harbor.
I’ll return to the IPO question soon, but first let’s have a look at the latest news that comes in a China Daily report on the aggressive plans that Chery and Jaguar Land Rover have for their new joint venture. The venture will produce vehicles under the Chery, Jaguar and Land Rover brand names, and will be capable of making 130,000 passenger vehicles a year. It will have total investment of up to 12 billion yuan, or nearly $2 billion, and will start production around the middle of 2014.
The $2 billion investment is a bit lower than the $3 billion that was mentioned when the companies first announced the joint venture early this year; but it’s still quite a big sum, and will no doubt pose some challenges for Chery, which has struggled over the last 2 years. Chery’s sales were down 11.5 percent in the first 9 months of the year, and the company’s recent export drive has run into obstacles due to a recent series of product recalls. (previous post) Chery now has more than 30 billion yuan in debt, and I suspect the government may have approved this new joint venture partly to improve the company’s prospects.
So now let’s return to the question of Chery’s IPO plans, and how they are likely to proceed. Since the government has already approved the company’s joint venture, I suspect the relevant regulators will also now approve Chery’s listing plan to give it a way to raise new funds to pay for its share of the joint venture. The listing itself will test investor sentiment towards the joint venture, since Chery’s current operations won’t look too attractive due to their declining status.
I suspect the company will ultimately go to Hong Kong for the listing, since an international offering will give the IPO more credibility even though many of the buyers could ultimately be big state-run entities. At the end of the day, barring any unforeseen problems, we can probably expect to see a Chery IPO in the first half of next year worth perhaps $1 billion, with Hong Kong as the most likely destination. The offering itself is likely to meet with moderate success despite Chery’s own cloudy prospects, as it should receive strong support from state-run investors who want to try to stop the company’s current decline.
Bottom line: Chery is likely to make an IPO in the first half of 2013 to raise funds for its new Jaguar joint venture, with Hong Kong as the most likely destination.
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This article was first published in the online edition of the South China Morning Post at www.scmp.com.
