BYD Co. (1211), the Chinese automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., has revived plans to sell new stock equivalent to as much as 20 percent of its Hong Kong-listed shares, people familiar with the matter said. The stock fell.
The company submitted an application with the China Securities Regulatory Commission, the people said, asking not to be identified because the proposal hasn’t been made public. BYD fell 4.9 percent to HK$45.65 at the close of trading in Hong Kong, the biggest decline in a week. Based on today’s close, the sale of as many as 158.6 million new shares would rake in HK$7.24 billion ($933 million).
The funds would give Shenzhen-based BYD room to step up investments and bolster production of electric cars and buses. Selling shares would also help alleviate the strain on a balance sheet that’s seen net debt surge to a record.
Pranab Kumar Sarmah, an analyst at AM Capital Ltd., wrote in a report this month that BYD will probably need to raise money from the capital markets because of the company’s deteriorating financial health and rising spending needs.
Cary Wei, a Shenzhen-based BYD public relations manager, said he wasn’t aware of any share-sale plan that was submitted to the stock regulator.
The sale would come as BYD braces for profit to tumble as much as 96 percent to 500 million yuan this quarter because of declining demand for its gasoline-fueled vehicles. Last year, profit jumped almost sevenfold after its billionaire founder and chairman, Wang Chuanfu, completed a three-year reorganization during which he cut the number of dealerships and narrowed losses at the solar business thanks to state incentives.
The company has reason to raise funds via shares over bonds or loans. The company’s net debt, or interest-bearing borrowings minus cash and equivalents, climbed 34 percent to a record 20.3 billion yuan ($3.3 billion) at the end of last year. Dividing that by equity, which is how BYD calculates its key gearing ratio for monitoring capital, the proportion of net debt bloated to 94 percent from 71 percent a year earlier.
The offering would also be a revival of a plan that was shelved about a year ago, one of the people said. The company suspended plans to sell the stock in 2013 after Bloomberg News reported on the share-sale plans, according to the person. At the time, BYD said that it wasn’t “currently” planning to issue new shares.
Waiting may have helped the stock. BYD surged 63 percent in Hong Kong trading last year and is up 20 percent in 2014, making it the best performer on the Hang Seng China Enterprises Index. On March 17, it climbed to a 3½-year high of HK$55.35.
While that’s short of the record HK$85.50 the stock reached in October 2009, it’s still profitable for MidAmerican Energy Holdings Co., the unit of Buffett’s Berkshire Hathaway (BRK/B) that bought 225 million Hong Kong-listed shares of BYD for HK$8 each about five years ago. The Berkshire unit is BYD’s biggest strategic partner by owning 28 percent of the Hong Kong-listed stock.
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