Guangzhou Automobile, China's sixth-biggest carmaker, said it will hike its offer to take unit Denway Motors private by 25 percent, as it readies for its own listing.
The revised offer sent shares of Denway, the carmaking partner of Japan's Honda Motor, up as much as 12 percent on Tuesday before they eased later.
"They are making the whole offer more attractive by revising the share exchange ratio," said Rachel Miu, an analyst at DBS Vickers.
Guangzhou Auto said it would revise upwards the ratio of the planned Denway share swap to 0.474026 Guangzhou Auto share for each Denway share, from 0.378610, to "further enhance the attractiveness of the offer".
Other terms of the privatization proposal remained unchanged, the company said in a filing to the Hong Kong stock exchange on Tuesday morning.
A local partner of Toyota Motor Co and Fiat SpA, Guangzhou Auto has a 37.9 percent stake in Denway. It also makes vehicles under its own brand.
Guangzhou Auto's listing will offer investors a chance to tap into the rapid growth of the world's biggest auto market.
Last month, Guangzhou Auto announced that it would issue $3.3 billion in new shares to privatize Denway as part of its own listing. Shareholders were to receive 0.378610 new Guangzhou Auto share for every Denway share held, implying a value of up to HK$5.49 ($0.704) per Denway share.
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