Buffett-backed electric vehicles debuts

Buffett-backed Chinese electric car maker BYD would raise a less than expected 1,42-billion yuan ($219 m) in its initial public offering (IPO) in Shenzhen, weighed down by weak investor sentiment and worries over its poor performance. BYD had priced the IPO at 18 yuan a share, it told the Shenzhen Stock Exchange yesterday.

The company had initially aimed to raise 2,19-billion yuan from the share sale, it said. At 18 yuan a share, the IPO valued BYD at 15,9 times consensus 2011 earnings forecasts and marked only a marginal 0,8 % premium to the company’s Hong Kong-listed shares. BYD’s Hong Kong-listed shares were last traded at HK$21,50 a share.

Despite the modest deal size, the listing was closely followed in China because local fund managers would finally have a chance to participate in the vehicle maker in which Mr Buffett invested in 2008.

Other mainland IPO hopefuls, such as New China Life, in which Swiss insurer Zurich Financial Services owns a 15% stake, and Citigroup-controlled Guangdong Development Bank as well as several Hong Kong-listed Chinese vehicle makers, are also looking to the deal for guidance on market demand.

BYD was selling up to 79-million shares in the IPO and proceeds from the sale would be used to fund its lithium-ion project, add to research and development and expand its product range, the prospectus said.

Shenzhen-based BYD had tried to return to the mainland stock market over the past three years. It finally obtained the crucial approval from the China Securities Regulatory Commission last month.

But the approval came just as sentiment towards Chinese IPOs turned sour after a series of less than satisfactory deals earlier this year and growing concern about the country’s economic health.

This month, Nanning Baling Technology, an air-conditioner producer, was forced to scrap its $49m IPO in Shenzhen after it failed to attract the required 20 institutional investors during book-building.

In April, shares in Pangda Automobile Trade, China’s first listed car dealer, plunged on its first day of trading after raising nearly $1bn.

BYD and the wider Chinese car industry are both seeing sales slow. The passenger car market, the world’s largest, is expected to grow at a low-teen percentage this year after growing 32% last year.

The company has seen its vehicle sales fall steadily since the second half of last year. Its sales last month slid 9% to about 41000 cars.

Starting business as a battery maker in Shenzhen 16 years ago, it faces international doubts over the design of its cars.

Diplomatic cables published by WikiLeaks, and interviews with industry consultants and executives , have raised a number of questions about its business practices.

Some car makers claim BYD requests just enough parts from reputable suppliers to reverse engineer the designs and then assemble them itself using inferior materials. Just as damningly, unnamed consultants claim BYD’s vehicles are unlikely to pass US safety standards, saying of one model, "If you shut the doors too hard, they fall off."