Three years ago Baoneng was denounced as a barbarian barging through the gates of the A-share market, when its unsolicited attempt to acquire Vanke through a leveraged buyout appalled the Shenzhen property heavyweight’s other major shareholders (see WiC308).
The saga ended with an intervention from regulators, which banned the property-to-insurance conglomerate’s boss Yao Zhenhua from the insurance sector for 10 years.
That doesn’t seem to have worried Yao (see WiC320 for his profile). who has found a new focus in the automobile industry recently. He has shed his bad-boy style too – at least when it comes to corporate takeovers. In his latest takeover bid Yao is riding in on a rescue mission, in the wake of one of the car sector’s nastier boardroom splits.
The company in question is Chang’an-PSA, a 50-50 joint venture between the French carmaker PSA Peugeot Citroen and state-owned Chang’an Automobile. The venture was set up in 2011 with initial investment of Rmb8.4 billion ($1.2 billion), targeting the premium car market with the Citroen DS line. “There is a win-win spirit with our [Chinese] partners,” Peugeot’s then chief executive Philippe Varin said when inaugurating the new production base in Shenzhen eight years ago.
The problem is that Chang’an-PSA turned out to be one of the poorest performing partnerships in the sector. According to CBN newspaper, it incurred losses of Rmb4.9 billion over the past six years, clocking up Rmb6 billion worth of liabilities against Rmb7.2 billion of assets by the end of September last year. Despite annual production capacity of 200,000 units from its Shenzhen production line it only sold 2,030 new cars in the first nine months of 2019. Sales dwindled to just 17 vehicles in October and November.
With those kind of results neither Chang’an nor PSA was willing to double down on their partnership and in a sign of their deteriorating relationship, the two companies announced separately in November that they were looking to sell their 50% stakes. The split, local media outlets noted, gave the impression that Chang’an-PSA had been reduced to an asset “nobody wants”.
Step forward Yao. In a stock exchange circular published on the last day of 2019, Chang’an announced that it agreed to sell its 50% stake to Baoneng for Rmb1.63 billion. A spokesman for PSA later confirmed that the French firm would sell its stake to Baoneng too, although the price for the latter deal has not been disclosed.
In recent years a number of Chinese firms have tried their luck in the automobile sector, such as property developer China Evergrande, solar firm Hanergy and internet conglomerate LeEco. Most of these start-ups have struggled but the precedent means Baoneng’s entry into the same market is not as quite as surprising as it might seem. In fact, it was first active in the sector three years ago, investing Rmb6.5 billion in Qoros, a Shanghai-based electric vehicle maker backed by Chery Automobile. Yao is also on record as saying he wants to turn Baoneng into a global automobile brand, with sales that account for more than half of the group’s income by 2027.
Perhaps it’s premature to conclude that he has no chance of pulling this off, especially when Beijing Daily notes that Baoneng has raised up to Rmb30 billion by selling down the stake it had accumulated in Vanke, which could be directed into the new venture (for comparison, Evergrande is said to be investing $41 billion in its electric car business; see WiC459).
All of this is happening at a time when the car industry has been undergoing a brutal consolidation. Sales fell for the first time in 2018 and the market has reported another 7.4% decline in 2019. Of course, the downturn will have helped Yao get a better price. “Baoneng’s takeover of Chang’an-PSA has reminded many industry insiders about Yao’s bottom-fishing of Vanke shares a few years ago,” Beijing Daily concluded.
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