Shares in Shanghai Automotive Co Ltd, the listed unit of China's largest car maker, gained 1.18 percent yesterday after it announced government approval for a proposed issue of 6.3 billion yuan (US$851 million) of convertible bonds.

 

Shanghai Auto, owned by Shanghai Automotive Industry Corp, will sell the six-year bonds, along with detachable warrants to A-share investors, according to its filing to the Shanghai Stock Exchange yesterday. Shares closed at 25.70 yuan, nearly tripling from the beginning of this year.

 

The 63 million units of bonds will have a face value of 100 yuan each and 3.6 warrants, the company said. Shanghai Auto offers the bonds with a coupon between 0.8 and 1.2 percent, but the final price depends on interest from institutional and retail investors.

 

Bond holders will be allowed to use the warrants to buy Shanghai Auto's shares at 27.43 yuan per share after 24 months.

 

Subscriptions start on Wednesday, and SAIC has said it will buy at least 800 million yuan of bonds as a priority subscriber.

 

The capital will be used to develop its own-brand passenger car, merge and acquire its commercial vehicle business as well as other financial units. Shanghai Auto plans to invest around 20 billion yuan to develop its own vehicles.

 

Annual production capacity will increase six fold from the current 50,000 units to 300,000 by 2012, and the product mix will broaden to develop premier sedans, sport utility vehicles and compacts.

 

Meanwhile, the tie-up between SAIC and its smaller domestic rival Nanjing Automobile Corp may end this month.

 

Nanjing Auto may inject its complete car manufacturing and auto parts assets into SAIC Motor for 10 percent of shares.

 

(Shanghai Daily December 18, 2007)