By Dow Jones Business News,
January 20, 2014, 07:27:00 AM EDT
By Yvonne Lee and Prudence Ho
HONG KONG--A strong pickup in China automobile demand is helping fuel two new deals worth up to $1.53 billion in
the nation's highly-competitive car dealership market.
China Grand Automotive Services Co., in which U.S.-based private-equity firm TPG Capital has a stake, is planning
to raise $500 million to $800 million in a Hong Kong share listing in the second quarter at the earliest, people with a
direct knowledge of the deal said Monday.
The listing plans for the Shanghai-based company, which owns and operates automotive dealerships, come as its
Beijing-based rival Zhongsheng Group Holdings said it agreed to sell a stake and convertible bonds to a unit of Jardine
Matheson Group, one of East Asia's oldest trading firm, for around $731 million.
The deals would give both dealership operators bigger war chests to compete in the competitive China car-dealer
market. China overtook the U.S. as the world's largest auto market in terms of sales in 2009. Though growth had
subsequently tapered off, vehicle sales picked up again in 2013 with a 14% annual rise, the biggest increase in three
years, according to official figures.
Sales totaled nearly 22 million vehicles, including almost 18 million passenger cars--a rise of 16%. By comparison,
vehicle sales were up just 4.3% in 2012, short of the 8% increase industry officials had expected.
Nonetheless, competition is intensifying and putting pressure on car dealers. According to J.D. Power & Associates,
there are 524 car models under 96 brands in China, far more than the 294 car models under 45 brands in the U.S.
Ivo Naumann, a managing director at consulting firm AlixPartners, said car manufacturers are pushing some of the
pressure away to dealers. The profit margin in China's car-dealer industry has dropped by almost 50% on average, he
China Grand Automotive, China's largest car dealer by sales, said in a debt-raising prospectus in January 2013 that
its gross profit margin fell to 3.8% in the first half of 2012 from 5.03% in the full-year of 2009 because of fierce
For Zhongsheng, news of the planned investment by Jardine, a conglomerate with British roots and a major operator
of auto dealerships in the region, helped fuel an 8.9% jump in the company's Hong Kong-traded shares on Monday. Jardine
unit Jardine Strategic Holdings said Monday it will have an up to 20% stake in Zhongsheng on conversion of the bonds.
While Jardine is probably best known for developing Hong Kong's central business district and for its Mandarin
Oriental luxury hotel chain, the group has also been investing significantly in auto-dealership businesses in Hong Kong,
southeast Asia and the U.K. It also operates several Mercedes-Benz dealerships in southern China, though its exposure to
the world's biggest auto market has so far been comparatively small.
China Grand Automotive, which will join Zhongsheng and a handful of other Chinese car dealers that have listed in
Hong Kong, started readying for a share offering nearly four years ago.
China International Capital Corp. and Goldman Sachs Group Inc. were initially hired to work on the listing in 2010.
The company has now added Citic Securities International, Citigroup Inc., HSBC Holdings PLC, and UBS AG to handle the
deal, said one of the people familiar with the situation.
TPG first took a stake in China Grand Automotive in 2007. The firm now holds around 33% of China Grand Automotive,
according to another person familiar with the situation.
Rose Yu in Shanghai and Cynthia Koons in Hong Kong contributed to this article.
Write to Yvonne Lee at firstname.lastname@example.org and Prudence Ho at email@example.com
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