Shanghai Automotive to Beef Up Assets

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HEARD IN ASIA: This 'Car Stock' Is Real Hybrid

• Summary: Shanghai Automotive Industry Corp's JV with General Motors is China's largest passenger-car maker by volume and its JV with Volkswagen is the countries second largest. Investors may gain access as soon as next month to the JVs if shareholders and regulators approve of what melts down to a swap of Shanghai Automotive's best assets to its publicly traded arm Shanghai Automotive Co. and its least attractive assets staying with the parent. Shanghai Automotive owns 50% stakes in both JVs and is currently only listed on the Shanghai Exchange but is believed to be considering a Hong Kong listing. One analyst warns the swap is not perfect since assets will double but profitability will increase only 30%. The asset swap is seen as a part of a growing trend where state-controlled companies are bolstering listed units with better assets. An industry expert sums it up: "The restructuring can be simply boiled down to an approach to improve operational efficiency and to beef up the GM, VW and Rover operations in the face of possible capital crunch when production capacity is raised in the future."
• Comment on related stocks/ETFs: Non-(mainland) Chinese investors have limited access to domestically listed China stocks. That said, Shanghai Automotive's strategic move is viewed favorably by analysts but won't mean much to foreign investors until it lists its shares in Hong Kong. An analyst in Beijing expects Shanghai Automotive to issue new shares over the next 6-12 months in order to help build its own car brand. This is an interesting development as a Seeking Alpha contributor suggests the next auto invasion is coming from China. Three auto-related China stocks listed in the U.S. include: China Automotive Systems (CAAS), Brilliance China Automotive (CBA), and China Yuchai Int'l (CYD). Shanghai Automotive's JV with General Motors (GM) is doing quite well with sales up 39% y-o-y through July. Its JV with Volkswagen (VLKAY) has experienced a 70% jump in sales. See Forbes.com XFN-Asia newswire and Reuters.com coverage for more details on Shanghai Automotive's plans and the market's reaction.