China Yongda Automobiles Retreats From Hong Kong
|   Tuesday, May 29, 2012
According to Bloomberg, China Yongda Automobiles Services Holdings Ltd has canceled its plans to raise cash for an initial public offering in Hong Kong. The amount in question stood at about 430 million dollars. Information on this matter came from 2 insiders who declined to state their identity for obvious reasons.

Yongda pursed this goal at first because Chinese auto dealerships were confronted with a lack of funds and were trying to raise money in the capital markets.
Conditions went further down from that moment, with 2 other large groups giving up on similar initiatives, China ZhengTong Auto Services Holdings Ltd and Baoxin Auto Group Ltd. They gave up on selling dollar-denominated bonds earlier this month, because the market conditions were not attractive enough.

Yongda, the largest distributor of BMW vehicles in China, has given up on the initial offering because it could not attract enough investors for the initiative to work. The company has to set the price for shares before the 28th of May is over, if we are to believe a sale prospectus. Further details have not been discovered as the company's chairman Cheung Tak On could not be reached by Bloomberg investigators.

Yao Wei, analyst for Everbright Securities, Shanghai, said "Yongda's IPO came at a bad time. Auto dealers have been burning money on network expansion and have caused market concern over their cash flows."
Yongda is but the latest to fail in the effort of raising funds in Hong Kong. The auto dealer is the fourth to try out its luck in the past 2 years. Zhongsheng Group Holdings, ZhengTong Auto and Baoxin Auto were the previous daredevils. The effects have been negative.

The stocks of those companies have fallen this year significantly. Zhengtong saw a drop of 40 percent, Baoxin is down by 26 percent, while Zhongsheng declined 10 percent.

According to other data compiled by Bloomberg, the IPO market in Hong Kong will have the slowest growth since 2009. So far, this year only 1.4 billion dollars have been raised, as opposed to the 7.3 billion raised in the similar period last year.

If the offering was successful, Youngda planned on using half of the funds to finance the opening of new outlets, about 35 percent were to be spent on acquisitions while the rest went into upgrading showrooms. Close to a 10th of the stock put on offer came from existing shareholders.
Youngda, an operator of 66 stores selling mid and high end vehicles, is a relatively new company on the market. Business began in 1991 with a bicycle renting gig then moved into the auto rental and insurance industry.

The company is well aware that the major risks to its continuing functioning are the reliance on foreign brands, the fierce internal competition, and the slowing rate of growth the industry is witnessing now. This has an unwanted effect on dealerships which will be forced to turn to more price cuts if they want their stockpiles to go down.
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