* BYD seeking to raise $330 mln with offer of 79 mln shrs
* Fund managers balk at 45 pct premium to HK shares
* BYD HK shares already trade at richer PE than mainland
rivals
* BYD should price sale to raise $185 mln-$309 mln – fund
managers
By Kelvin Soh and Fang Yan
HONG KONG/BEIJING, June 14 (Reuters) – Warren Buffett-backed
BYD Co Ltd faces stiff headwinds raising the $330
million it seeks from its China share sale, with weakened
markets and the battery and electric vehicle company’s recent
poor performance scaring off investors.
Some nine fund managers and industry analysts surveyed by
Reuters said they would want to see BYD’s Shenzhen share offer
priced at a discount to its Hong Kong-listed shares before they
would considering subscribing.
“It’s going to be very difficult for them to get the price
they want,” said Pan Jiang, a Shanghai-based fund manager at
Franklin Templeton Sealand Fund Management.
“Stock market sentiment is very weak right now, and we’re
not looking at this share because we are not too positive on
industries such as electric vehicles.”
China’s benchmark Shanghai Composite Index is
hovering around its lowest levels this year, battered by fears
of a possible economic slowdown in the latter part of 2011 as
bank lending slows.
In line with Chinese IPO practice, the company and its
underwriter UBS Securities, the Swiss bank’s joint venture in
China, have not set a price range for the Shenzhen share sale
and are currently on the road seeking feedback on a price
investors are willing to pay.
BYD said in its prospectus it hopes to raise 2.16 billion
yuan ($333 million) from the sale of up to 79 million shares.
That works out to an offer price of over 27 yuan per share — a
hefty 45 percent premium over its Hong Kong close on Monday.
Some institutional investors have balked at the asking
price, pointing to the firm’s sluggish sales in recent months
and the potential downside risk in BYD’s foray into electric
vehicles and car batteries.
“Earnings from electric cars and buses will take some time
to realise,” said Victoria Mio, who manages about 600 million
euros at the Robeco Chinese Equities Fund. “The automobile
sector is especially weak now, and there is still some downside
risk.”
BYD plans to use the stock proceeds to fund its lithium ion
project, add to research and development and expand its product
range.
The company has seen its auto sales fallen steadily since
the second half of 2010. Its May sales slid 9 percent to about
41,000 cars.
Its shares have also been in downward spiral, with its Hong
Kong-listed stock tumbling more than 60 percent in the past
year, compared with a more than 8 percent gain in the benchmark
Hang Seng Index .
BYD’s performance is also weaker than other Chinese
carmakers listed in Hong Kong. For example, Great Wall Motor
has risen about 95 percent in the past year.
BYD last traded at HK$23.20 on Tuesday, up 3.1 percent on
the day.
HEFTY VALUATION
BYD’s Hong Kong-listed shares, which were trading at over 17
times historical earnings on Monday, are still priced at a
significant premium to its peers on the mainland which typically
trade at below 10 times earnings.
For example, top Chinese automaker SAIC Motor Corp
closed at about 9.5 times earnings on Monday, while
Great Wall Motor closed at about 8.5 times earnings on the same
day.
“The Chinese auto market is very different now from 2009 or
2010 when sales kept hitting new records,” said Liu Lixi, an
analyst with Northeast Securities.
Shares of Pangda Automobile Trade , one of the
country’s top auto dealers, plunged 23 percent on its Shanghai
debut in late April on concerns of slowing auto sales and stock
market volatility.
To avoid falling below its IPO price on its opening day like
Pangda Auto, BYD should set its price at between 15-25 yuan,
many of those polled said, pointing to total proceeds of 1.2-2
billion yuan.
“It’s obviously not a good time to go public now unless a
company needs money urgently, and BYD seems to fit into that
category,” said Liu at Northeast Securities.
Despite all the seeming pessimism, BYD, which stands for
“Build Your Dreams”, still has its Buffett trump card that has
said it is ready to stand by one of its most prolific Chinese
investments.
Buffett’s Berkshire Hathaway (BRKa.N) is happy with its
investment in BYD and still considers the company a good
investment despite the company’s recent problems.
It owns about 10 percent of the Chinese carmaker, which it
bought in September 2008 for $230 million, or about HK$8 per
share.
“I’m quite encouraged by what’s going on, and I expect
delays and glitches,” Berkshire’s Vice Chairman Charlie Munger
said in late April, adding that such growing pains were natural
given BYD’s aggressive growth plans.
($1 = 6.483 Chinese Renminbi)
(Editing by Charlie Zhu and Lincoln Feast)