Caixin
May 30, 2018 07:58 PM
BUSINESS & TECH

Anhui Looks to Trade Control of Chery for $3 Billion

Chery Automobile Co. Ltd. vehicles are assembled at a factory in Wuhu, Anhui province, in October 2016. Photo: VCG
Chery Automobile Co. Ltd. vehicles are assembled at a factory in Wuhu, Anhui province, in October 2016. Photo: VCG

Cash-strapped state-owned automaker Chery Automobile Co. Ltd. is looking for strategic investors to buy a controlling stake in the company for at least 20 billion yuan ($3.1 billion), sources told Caixin.

The deal, which is expected to be sealed in June, will see the Anhui provincial government relinquish its control over the company — although it will retain veto powers to ensure the company does not move operations out of the East China province.

Parties that have shown an interest in investing include property and insurance conglomerate Baoneng Group and investment firm Fosun International Ltd., said people familiar with the matter.

But despite offering a cash infusion of over 25 billion yuan, Baoneng has apparently been denied because the Anhui government would prefer a “simpler” investor, a source said.

The Anhui government believes bringing in Baoneng could complicate Chery’s management structure, making the automaker “hard to control” in the future, sources told Caixin.

Baoneng has been beefing up its investment in China’s booming electric vehicle sector, setting up facilities to build electric vehicles and components, and acquiring stakes in several automakers. It already owns a 51% stake in Qoros Automotive Co. Ltd., a joint venture set up by Chery and Israeli billionaire Idan Ofer’s Kenon Holdings Ltd. in 2007.

China’s automobile industry faces overcapacity as it has an estimated 184 carmakers — a figure that includes foreign joint ventures, state-owned groups and private companies. Market watchers said the industry can’t support more than 10 major automakers in the long haul.

Chery reported a net cash outflow of 3.1 billion yuan last year, a turnaround from its net cash inflow of 3.5 billion yuan a year ago. Its debt-to-asset ratio has hovered at 75% over the past few years, a number which analysts said was higher than the 40% to 60% usual for most automakers.

Founded by the government in 1997 to help develop made-in-China vehicles, Chery was once a pioneer, claiming in 2007 to be the first Chinese carmaker to produce 1 million vehicles annually.

Its Israeli venture, Qoros, is a testament to its aspirations to become first domestic car brand to export overseas, but the first model wasn’t introduced to the market until 2013, and the company has been bleeding cash.

Chery’s car sales on its home turf have been gradually declining since 2010 due to intense competition and the poor positioning of its car offerings, industry observers said.

Last year, its total deliveries in China fell 3.5% year-on-year to 680,000 vehicles.   

Contact reporter Jason Tan (jasontan@caixin.com)

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