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Cars: BAIC IPO, Geely goes electric

Daimler’s investment in BAIC indicates the latter may make a long-awaited IPO later this year, while Geely’s purchase of bankrupt Managanese Bronze looks like a strategic mistake.

Geely Automobile Holdings Limited Chairman Li Shufu attends a news conference in Hong Kong in May 2011. Photo: SCMP

News bits from the automobile space indicate the long-awaited IPO by Beijing-based car maker BAIC Motor may finally be coming soon, while the struggling Geely (0175.HK) is chasing a couple of distracting new initiatives in the electric vehicle and overseas markets. Let’s start with the BAIC news, as that looks the most interesting since it could provide investors with an interesting IPO opportunity later this year.

Media are reporting that BAIC’s joint venture partner, German luxury automaker Daimler (Frankfurt: DAIGn), is paying 640 million euros for 12 per cent of BAIC. Daimler has said the deal makes it the first global brand to own a direct stake in a Chinese automaker, and added its investment was in preparation for a potential IPO by BAIC.

Under the deal, Daimler will gain 2 seats on BAIC’s board. But perhaps most importantly, the deal will see BAIC boost its stake in its Daimler joint venture to 51 per cent, meaning BAIC can consolidate all of the joint venture’s performance into its own results. That’s an important accounting move, since BAIC, like many other major Chinese automakers, counts its foreign joint venture as one of its biggest assets with greatest growth potential.

Despite its status as one of China’s largest domestic automakers, BAIC’s name was absent from last year’s list of the top 10 selling car brands in China, which was dominated by foreign names led by Volkswagen (Frankfurt: VOWG) and General Motors (NYSE: GM). BAIC has talked about an IPO for years now, but this investment by Daimler does appear to indicate that such an offering may finally be coming later this year, perhaps in Hong Kong. Big strategic investors often make such investments in the year before such offerings, both to show their support for the company and also to make some profits if and when the stock rises after the offering.


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