Changan Auto to announce AVIC auto assets regroup

China Chang'an Automobile Group will hold a press conference on November 10, 2009, announcing the restructuring of automobile assets under China Aviation Industry Corporation (AVIC).

On Thursday, auto media received letters from Chang'an Auto, inviting them to attend the press conference. Without mentioning the news to be released, the letters listed the names of important guests, including government officials and top executives of major Chinese carmakers.

Two days ago, Harbin Dong'an Auto Engine Co., Ltd. announced a trading suspension, saying that its effective controller will probably be changed, because AVIC is holding talks with potential investors. In the following days, Dong'an Auto Engine's stock price kept surging.

On November 5, the company issued another announcement, according to which its controlling shareholder AviChina Industry & Technology Co., Ltd. would launch a share swap with AVIC. Both sides have inked an agreement on the deal.

In detail, 252 million shares in Dong'an Auto Engine, representing a 54.51% stake controlled by AviChina, will be exchanged for 116 million shares in China Aviation Optical-Electrical Technology Co., Ltd., equivalent to a 43.34% stake held by AVIC.

After the share swap, AVIC will have 252 million shares or a 54.51% stake in Dong'an Auto Engine and become the latter's controlling shareholder and effective controller.

The announcement is profound in meaning, since there were reports days ago that AVIC would gear up in auto manufacturing. AVIC Automobile Industry Company plans to invest CNY 1 billion in building its own R&D center, which will develop small green energy cars.

Geng Ruguang, deputy general manager of AVIC, reveals that AVIC Auto's target for affiliated special vehicle business like Xi'an Silver Bus Corporation is to obtain sales revenues of CNY 30 billion by 2017.

The bus maker, planning to have a production capacity of 4,000 vehicles per year by 2014, will gain more support from AVIC in terms of R&D and interior procurement.

However, analysts believe that AVIC is making preparations for a spin-off of auto assets through the share swap. AVIC's affiliated auto assets include Dong'an Auto Engine, Dong'an Heibao Co., Ltd., Jiangxi Changhe Auto Co., Ltd., and Harbin HF Automobile Industry Group Co., Ltd.

If those assets are transferred to Chang'an Auto under the aegis of China South Industries Group Corporation (CSG) as planned, AVIC will be able to focus on China's jumbo jet project.

Meanwhile, Chang'an Auto's listed arm Chongqing Chang'an Automobile Co., Ltd. (SZSE: 000625) will boost its mini car manufacturing and compete against archrival SAIC-GM-Wuling Automobile Co., Ltd. (SGMW).