Spyker-Pangda Deal May Fail on China’s Auto-Industry Policy

Spyker Cars NV CEO Victor Muller
The agreement “is first and foremost about distribution,” and any concern that the carmaking portion contradicts industrial policy “misses the point,” Spyker Chief Executive Officer Victor Muller said in a phone interview on May 19. Photographer: Nelson Ching/Bloomberg

Spyker Cars NV, the Dutch owner of cash-strapped Saab Automobile, will have difficulty overcoming Chinese policy aimed at industry consolidation as the carmaker seeks a tie-up with Pangda Automobile Trade Co., analysts said.

Spyker’s second attempt in less than a month to establish a partnership for Saab in China may run counter to government strategy that includes slashing the number of vehicle manufacturers by 90 percent, said analysts including Zhang Xin at Guotai Junan Securities Co. in Beijing.

“There is almost no chance for the government to approve Pangda’s purchase of Spyker’s stake, let alone their plan to set up a new joint venture in China,” Zhang said by phone. “The deal doesn’t fit in the government’s plan for consolidation.”

Pangda, a car dealer that raised 6.3 billion yuan ($969 million) last month in an initial public offering in Shanghai, agreed on May 16 to pay 65 million euros ($91 million) for a 24 percent stake in Spyker and create carmaking and distribution ventures. The partners announced the accord less than a week after the collapse of Zeewolde-based Spyker’s nine-day-old agreement with Beijing-based Hawtai Motor Group.

Spyker is seeking investors to help rescue Trollhaettan, Sweden-based Saab, which suspended production in late March when suppliers withheld parts because of unpaid bills. The automakers also are offering a stake to Russian banker Vladimir Antonov, a former Spyker chairman who was ousted when General Motors Co. sold Saab to Spyker last year.

Saab Car Purchase

Pangda paid a 30 million-euro advance on Saab cars that it will import and sell in China later this year. It plans a local production venture with Saab and another company starting in 2013. Saab and Tangshan, China-based Pangda would each own half of the separate dealership venture.

The Chinese company, the country’s largest car dealership by market capitalization, remains “convinced that we will be able to get all the necessary documentation and approvals to successfully complete the transactions,” Pangda said today in a joint statement with Spyker. Pangda had said on May 16 that there were “major uncertainties as to whether the plan will be implemented” amid regulatory questions.

Pangda fell 2 percent to 34.22 yuan at the 3 p.m. close of Shanghai trading, valuing the company at 35.9 billion yuan. The stock has declined by the second-biggest margin, after Henan Tong-Da Cable Co., among Chinese companies that have held IPOs in the past three months. Spyker rose 0.9 percent to 3.43 euros at the 5:30 p.m. market close in Amsterdam, narrowing the stock’s decline this year to 1.1 percent.

Industry Target

China has been trying since 2009 to reduce its auto industry to 10 companies holding 90 percent of the market from about 100 manufacturers currently. Regulators blocked Sichuan Tengzhong Heavy Industrial Machinery Co.’s 2010 purchase of GM’s now-defunct Hummer sport-utility vehicle unit, partly because of a policy focus on making more fuel-efficient cars.

Pangda and Saab executives said their main aim with the agreement is to offer Chinese sales outlets for the Swedish brand. The manufacturing venture is intended “mostly to ensure the constant supply of these cars,” Wang Yin, Pangda’s board secretary, said in a phone interview. Government approval “really depends on the actual project. I believe the government will look at individual projects on a case-by-case basis.”

Distribution ‘Foremost’

The agreement “is first and foremost about distribution,” and any concern that the carmaking portion contradicts industrial policy “misses the point,” Spyker Chief Executive Officer Victor Muller said in a phone interview on May 19. “No one knows who the manufacturing party will be. Maybe it’ll be one of the top three carmakers.”

Pangda needs to persuade at least three government agencies -- the National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange -- that it can profit from the deal and contribute to state policy of making the car industry more competitive.

Local Commerce Ministry branches must clear overseas investments of less than $100 million, with higher amounts requiring national-level approval. The development commission reviews projects for compliance with economic policy. The State Administration of Foreign Exchange regulates currency aspects of Chinese companies’ investments abroad.

Pangda said today that “initial procedure discussions” with the National Development and Reform Commission “were done in good spirit, and all parties have a good understanding of the process going forward.”

Spokesmen for the commission, the Commerce Ministry and the foreign-exchange administration said they couldn’t immediately comment.

Hawtai Snag

Spyker, which is changing its name to Swedish Automobile NV following the Saab takeover, blamed the Hawtai agreement’s breakdown on the Chinese partner being unable “to obtain all the necessary consents.” Hawtai cited “commercial and economic realities” for the collapse.

“The car industry needs strong quality carmakers making good-quality cars with the right price,” said Scott Laprise, an analyst with CLSA Asia Pacific in Beijing. “We don’t need more brands. A lot of the small carmakers know they are in trouble because consolidation is going to happen. To survive, they need to do things like to acquire other brands because their brands are not good enough or the technology is not good enough.”

European Approvals

Pangda’s Spyker stake also requires the approval of Sweden’s government and national debt office, the European Investment bank and GM. The EIB, the European Union’s lending arm, is Saab’s biggest creditor with a loan guaranteed by Sweden.

The debt office has yet to receive any application on Pangda’s proposal, said Daniel Barr, the official handling Saab’s case. A decision may take three or four weeks after a filing, Barr said.

Swift decisions by regulators will be key for Spyker, said Martin Crum, analyst at Amsterdams Effectenkantoor BV.

“It’s clear they need a lot of cash and they need it as soon as possible,” Crum said by telephone. “But I don’t rule out the possibility that Muller will come up with a third alternative if this deal doesn’t go through.”

In addition to the cars it has on order with Saab, Pangda has an option to buy another 15 million euros of vehicles. Saab aims to restart production on May 27, Muller said.

Importing and selling Saab’s cars “doesn’t come with any particular risks” as the companies don’t need state approval, Guotai Junan’s Zhang said.

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