BYD Co., the struggling Chinese carmaker partially owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), fell on concern existing investors will be diluted after two people familiar with the matter said the company plans to issue new stock.
BYD, China’s biggest maker of electric vehicles, fell 10 percent to $3.02 at the close in New York, the biggest loss in a year. Shares traded in Hong Kong fell 7.8 percent to HK$24.25, the biggest decline since Sept. 26.
Shareholders don’t like additional offerings as they dilute the value of their investment in the absence of other positive developments, said Joe Phillippi, principal of consulting firm AutoTrends Inc. and a former equity analyst for UBS Warburg. The sale may be worth as much as a 20 percent stake, said the people, who asked not to be identified because the proposal hasn’t been made public.
“There’s got to be a really good reason,” Phillippi said. “To do it just to bring new cash isn’t going to sit well with shareholders, especially institutional investors. Ideally, you’ve got to have a string of good earnings numbers behind you, an expected string of two or three good quarters ahead of you and your economy is rising.”
BYD hired Deutsche Bank AG and UBS AG to arrange the sale of new Hong Kong-listed shares worth and the company’s board may approve the plan next week, one of the people said. Veronica Jiang, a Shenzhen-based BYD spokeswoman, said the company doesn’t currently have plans to issue new shares. She declined to elaborate.
Proceeds from the sale -- worth as much as HK$3.85 billion ($496 million) based on the stock’s latest close in Hong Kong -- would help the automaker fund investments and pay off debt. BYD’s profit in 2012 probably fell 94 percent to the lowest since 1999, based on preliminary company estimates, as it faced increasing competition in its battery business.
BYD’s vehicle sales fell 18 percent to 77,004 units in the third quarter. In the first nine months of last year, BYD received 371.1 million yuan ($60 million) in government subsidies for research and development and energy-saving automobiles, helping it earn 20.8 million yuan in net income, according to a filing to the Hong Kong exchange.
Proceeds from the sale would add to the company’s fundraising in the past year. The company sold 3 billion yuan of five-year bonds in June 2012. China Development Bank agreed last year to provide financing to buyers of BYD’s electric buses and taxis so that they need no down payment if the purchases are for public transportation.
MidAmerican Energy Holdings Co., a unit of Buffett’s Berkshire Hathaway, is BYD’s largest investor with 225 million shares, according to data compiled by Bloomberg.
BYD won approval in January from the European Union to sell its electric buses in all member states without the need for individual national permission. In December, the automaker had agreed to set up a joint venture with Bulmineral Ltd. to produce electric buses in Bulgaria. The company’s electric buses are in operation in the Netherlands, Hungary and Spain.
Last September, BYD said it plans to open new manufacturing plants in Yunnan province to build new-energy vehicles as part of an expansion plan into southwest China and neighboring Asian countries.
The automaker also has a joint venture with Daimler AG to produce a new-energy vehicle. The two partners will boost capital in the venture by 430 million yuan each, according to a March 1 statement to the Shenzhen stock exchange.