All bets are on ZhengTong Auto

Source: Global Times
[08:07 December 07 2010]
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By Chen Xiaomin

Big institutional investors including Robert Daniel Soros, son of billionaire investor George Soros, have expressed an interest in investing in shares of auto dealership China ZhengTong Auto Services Holdings Co, a source close to the deal said Monday.

The Hubei-based auto dealer, which is scheduled to start trading Friday, has also attracted the attention of Singapore's Temasek Holdings and the Government of Singapore Investment Corp, as well as China Investment Corp and Fidelity Investments, a source close to the deal told the Global Times Monday.

The anonymous source said ZhengTong shares were five times oversubscribed by institutional investors and 2.3 times oversubscribed by retail investors. The final offering price was set at HK$7.3 ($0.94), valued at 17 times forecasted 2011 earnings, according to the source.

ZhengTong, the mainland's 21st-largest auto dealer and BMW's second-largest dealer, aims to more than triple its outlets to 68 by the end of 2012. Robert Daniel Soros will invest $50 million in the Hong Kong IPO of ZhengTong, according to a report by the Oriental Daily News from last week.

"As China's auto market continues to boom in the foreseeable future, the present fragmented dealer industry (which is undergoing an overhaul) will see several larger dealership groups in the future," Li Yinkang, a Jiangsu-based auto analyst with Soochow Securities, told the Global Times.

Institutional investors expect high future yields to be generated by several strong dealers like ZhengTong, who will survive and grow after the consolidation is over, said Li.

Besides ZhengTong, several other dealers have also gone public or have an interest in floating shares to expand networks and make new acquisitions. Zhongsheng Group Holdings Ltd, which listed in late March, has grown from 47 dealers last year to more than 69 at the end of June.

Shen Rong, deputy secretary general with China Automobile Dealers Association, said Monday that more and more large dealers would seek capital injections to fund expansion plans.