China Yongda Automobiles Services Holdings Ltd. (3669) canceled plans to raise as much as $430 million in an initial public offering in Hong Kong, two people with knowledge of the matter said.
China’s biggest distributor of BMW cars, which had extended its order-taking process from last week, decided to shelve the offering after failing to get enough demand from investors, said the people, who declined to be identified because the information is private. The Shanghai-based company has to set a final price for the shares no later than today, according to a sale prospectus. Yongda Chairman Cheung Tak On couldn’t be reached for comment at his office.
Yongda pursued its IPO at a time when Chinese auto dealerships were struggling to raise funds in the capital markets. China ZhengTong Auto Services Holdings Ltd. (1728) and Baoxin Auto Group Ltd., which operate BMW stores in China, scrapped plans to sell dollar-denominated bonds this month, with Baoxin citing “less attractive” market conditions.
“Yongda’s IPO came at a bad time,” said Yao Wei, an analyst with Everbright Securities Co. in Shanghai. “Auto dealers have been burning money on network expansion and have caused market concern over their cash flows.”
Dow Jones Newswires reported the cancellation of the IPO earlier today.
Yongda, which operates 66 stores selling mid- to high-end vehicles, is the fourth Chinese auto dealer to try and raise funds in Hong Kong in the past two years. Zhongsheng Group Holdings Ltd. (881), a Beijing-based distributor of Mercedes-Benz cars, first sold shares in March 2010, followed by ZhengTong Auto and Baoxin Auto.
All three stocks have fallen this year, with only Zhongsheng trading above its IPO price. Zhengtong Auto has fallen 40 percent and Baoxin Auto is down 26 percent. Zhongsheng has declined about 10 percent.
Hong Kong’s IPO market is set for its slowest first half since 2009. Companies have raised $1.4 billion through initial offerings so far this year, compared with $7.3 billion in the same period in 2011, according to data compiled by Bloomberg.
Yongda had planned to use about 50 percent of the net proceeds to finance the opening of new outlets, about 35 percent on acquisitions and the rest to upgrade and expand existing showrooms and for working capital, according to its prospectus. A 10th of the stock offered were shares sold by existing shareholders, it said.
The company began as a joint venture with a bicycle accessory manufacturer in 1991, before expanding into distributing passenger vehicles a year later. It then started businesses in auto rental and vehicle insurance, and went into sales of pre-owned vehicles.
Risks to its business include a reliance on a few major brands for revenue, and competition in China’s dealership industry, Yongda said in the prospectus this month.
Growth in the industry is slowing. Chinese vehicle demand in the first four months of the year increased the least since 1998, weighing on automakers from General Motors Co. (GM) to Volkswagen AG (VOW), which are counting on the nation to offset slumping sales in Europe.
The slowing demand is hurting dealerships, whose pileup of unsold cars is threatening to deepen price cuts, according to Su Hui, vice president of the auto market division at the state- backed China Automobile Dealers Association.
“Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west,” Su said in a telephone interview this month. “It’s like a contagious disease that will spread.”
Yongda’s sale was arranged by UBS AG and HSBC Holdings Plc.
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