Exclusive: VW eyes buying big stake in China partner JAC, taps…

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HONG KONG/FRANKFURT (Reuters) – Volkswagen AG is exploring purchasing a big stake in its Chinese electric vehicle joint venture partner JAC Motors and has tapped Goldman Sachs as an adviser on the plan, people with direct knowledge of the matter said.

Workers are seen at the production line for Volkswagen Tayron cars at the FAW-Volkswagen Tianjin Plant in Tianjin, China December 12, 2018. Picture taken December 12, 2018. REUTERS/Stringer

The move by VW, the largest foreign automaker in China, to buy into Anhui Jianghuai Automobile Group (JAC Motors) is the latest step by foreign automakers to increase their stakes in their Chinese joint venture partners or in the ventures themselves since Beijing relaxed ownership rules last year in the world’s biggest car market.

Rival German automaker BMW agreed in October to buy control of its main joint venture in the country for 3.6 billion euros ($4.05 billion). Daimler AG also plans to increase its stake in local partner BAIC Motor.

Foreigners were previously prevented from controlling any Chinese automaker or joint venture. Beijing last year removed such caps for firms making fully electric and plug-in hybrid vehicles. Limits on commercial vehicles makers ease in 2020 and by 2022 for the wider car market.

VW, which has a market capitalization of 75 billion euros, is not currently a shareholder in Shanghai-listed JAC, which has a market value of about $1.7 billion, according to Refinitiv data.

The German car giant’s plans are at an early stage but it is keen to take a big stake, said three of the people. Two of them said it will seek to buy shares from JAC’s major shareholders, which are mainly state-backed firms owning over 40 percent, showed Refinitiv data.

JAC’s parent, Anhui Jianghuai Automobile Group Holding, holds a 24 percent stake and is fully controlled by the local government.

When contacted by Reuters, VW said: “We are carefully watching what the implications are for our business and for our joint venture partners. In this regard we will explore all possible options together with all stakeholders to secure long-term success in China.”

JAC and its parent didn’t respond to requests for comment. Goldman declined to comment. The people declined to be identified as the matter was confidential.

JAC is trading at a trailing price-to-book ratio of 0.84, which means VW would have to pay a premium for shares since JAC’s state shareholders cannot sell shares for less than their book value.

The Chinese automaker’s shares jumped and hit the daily 10 percent maximum increase limit on Wednesday afternoon. VW shares were indicated to start trading flat.

VW IN CHINA

Wolfsburg-based VW, which delivered 4.21 million cars in mainland China and Hong Kong last year, has operated in China for decades and, besides JAC, has joint ventures with state-owned FAW Group and SAIC Motor.

It formed its 50:50 JV with JAC in 2017 to research and develop zero-emission passenger cars as the German automaker has committed almost one-third of the industry’s EV spending, about $91 billion, betting big on the Chinese market.

It looks to shift a large part of its planned EV production in China to JAC if it ends up operating the local automaker after a stake purchase, said one of the people.

JAC warned in January of a 770 million yuan net loss for 2018 mainly due to a drop in car sales, compared to a 432 million yuan profit in 2017.

FILE PHOTO: Employees work on a production line manufacturing light trucks at a JAC Motors plant in Weifang, Shandong province, China November 30, 2018. REUTERS/Stringer/File Photo

Excluding exceptional items such as government subsidies, losses would reach 1.9 billion yuan, the company said. It will release annual results on April 30.

China last month toughened up its EV subsidies amid concerns that generous local government support designed to produce regional industry champions has contributed to overcapacity and inefficiency.

JAC, China’s 11th largest local automaker by group sales, makes a range of commercial vehicles including pickup trucks and heavy duty trucks. It also produces vehicles for electric car maker NIO Inc, one of Tesla Inc’s rivals in China.

Reporting by Julie Zhu and Arno Schuetze; Additional reporting by Yilei Sun in Beijing, Edward Taylor in Frankfurt and Kane Wu in Hong Kong; Editing by Jennifer Hughes and Muralikumar Anantharaman



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