A photographer snaps Shanghai Automotive Industry Corp's MG6 model. The company's listed subsidiary, SAIC Motor Corp Ltd, will take over the auto assets from its parent for 28.6 billion yuan ($4.37 billion). [Photo / Bloomberg]

Automaker taking over its parent's car businesses in deal worth $4.37b

BEIJING - Shanghai Automotive Industry Corp (Group), China's largest automaker by sales volume and revenue, is close to attaining total securitization by plunging all of its auto-related assets into its listed subsidiary SAIC Motor Corp, to increase the latter's profitability, competitiveness and car making capabilities.

SAIC Motor Corp Ltd, the Chinese partner of Volkswagen AG and General Motors Co, will take over the auto assets of its parent, worth 28.6 billion yuan ($4.37 billion), by issuing 1.73 billion shares at 16.53 yuan each by preliminary estimates, according to a statement the company filed with the Shanghai Stock Exchange on Tuesday night.

Trading in shares of SAIC Motor and SAIC Group's other subsidiary Huayu Automotive Systems Co were suspended at Shanghai Stock Exchange on Feb 14, when SAIC Motor closed at 18.45 yuan and Huayu at 12.81 yuan, pending the announcement.

However, trading resumed on the Shanghai bourse on Wednesday after the announcement, and shares in SAIC Motor closed at 18.48 yuan and Huayu Automotive at 12.27 yuan - with SAIC Motor dropping 1.70 percent and Huayu 4.88 percent from the opening price.

Market analysts said that short-term concerns arising from the dip will not affect the shares' value in the future.

Cao He, an auto analyst with Minzu Securities, expects the share price of SAIC Motor's to jump to more than 23 yuan in the near future.

Under the proposal, already approved by SAIC Motor's board, the Shanghai-based carmaker will acquire operations in auto parts manufacturing, automobile-related service and trading, financing, and new-energy car technologies from its parent, which currently owns 72.95 percent of SAIC Motor.

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It will also take over SAIC Group's interest in Huayu Automotive.

After the all-share deal, the management of SAIC Group and SAIC Motor will merge, according to the statement.

Wang Jianzhang, secretary of SAIC Motor's chairman, said that the company hopes to merge its capabilities in car and parts manufacturing, aiming to strengthen its competitiveness in the global market as well as establish a competitive new-energy vehicle industry chain for future development.

The company also expects the auto service and trade assets will be its new profit engine in the coming years.

The restructuring - which will help SAIC Group to inject more than 90 percent of its assets, excluding only two real estate operations, into the listed subsidiary - also conforms with to the securities regulator's appeal for requiring Chinese companies to list their entire business to increase transparency and improve corporate governance.

Analysts said that the restructuring will make SAIC Motor the first listed automaker in China to own the whole automobile manufacturing chain, which will bring it a new profit engine and improve its sustainable development over the long term.

SAIC Motor said last week that revenue in 2010 surged 125 percent year-on-year to 313.38 billion yuan. With total sales of 3.58 million vehicles last year, it became the world's eighth-largest automaker, after occupying the No 10 spot in 2009.

Analysts said that SAIC Motor's revenue is expected to pass 400 billion yuan after the restructuring this year.