Update: Chery raises $425M from private equity

Chery Automobile Co. of China said Wednesday that it had raised 2.9 billion yuan ($425 million), in capital from domestic investors.

The auto maker said the investment would help fund its development and showed confidence in its strategy. Investors included Bohai Industrial Investment Fund Management Co., CDH Investments, China Huarong Asset Management Co. and a Shenzhen-based investment fund, Chery said.

Chery didn't specify the total stake sold to the investors or over what time period the capital was raised. A company spokesman said Tuesday that Chery in recent months has sold a 20% stake to investors.

China's automobile industry is facing tough times as a global slowdown has hit Chinese consumers' demand for new vehicles. Chery, one of China's largest independent car makers, failed to meet its sales target of 480,000 vehicles last year, selling just 356,000.

The sector is in less dire straits than counterparts in the U.S. and Europe, but sales-growth rates have slowed. The fund-raising will help bolster the Anhui-based car maker's balance sheet against shortfalls in sales.

This year, Chery has lowered the bar for itself amid tougher economic conditions. It is aiming to sell 419,000 vehicles in 2009, Mr. Jin said.

The auto maker made its name by producing the tiny subcompact QQ, one of China's best-selling and least costly cars. That model sells for as little as $4,500. This year, Chery has focused on targeting higher-end buyers by rolling out a new brand of sedan called Riich that is expected to sell for about $30,000 to $44,000.

Chery has been considering plans for a domestic initial public offering of stock in Shanghai, and the investment sets a valuation standard for an offering when Shanghai's exchange reopens to new IPOs.

Chery spokesman Jin Yibo said Chery has submitted the IPO application to the China Securities Regulatory Commission. "But last year the market situation was very bad and the CSRC suspended all IPO approvals," Mr. Jin said. "So far we have not heard of any new progress yet."

The investors in the deal are all local funds, reducing the red tape involved in striking such a deal. Domestic yuan funds require fewer government approvals and don't need to convert currency when investing or exiting their investment. China's currency remains tightly controlled, making the exchange of large sums of currency sometimes difficult.

Bohai Industrial Investment Fund Management was created as an experiment at building a local private-equity firm with the backing of Beijing officials and prominent state-owned financial firms. The management company, which is 53%-owned by Bank of China Ltd. and its investment-banking arm, BOC International Holdings Ltd., closed its first fund at the end of 2006, raising a 6.1-billion-yuan war chest for deals.

CDH Investments, which also operates offshore U.S. dollar-denominated funds, is using its five-billion-yuan fund that it began raising last year from local investors, including one billion yuan from China's National Council for Social Security Fund.

Chery also received a financial boost last year when policy lender Export-Import Bank of China agreed to grant 10 billion yuan of loans to Chery.

In 1997 five state-backed investment companies in Anhui province set up Chery Auto with 1.75 billion yuan of capital, according the company's Web site.