CDH secures buyout of HK-listed firm

The China-focused private equity firm intends to take a majority stake in New Focus Auto Holdings, acquiring $97.4m worth of its stocks and bonds.

China country manager CDH Investments intends to privatise Chinese car manufacturer and distributor New Focus Auto Holdings, which is listed on the Hong Kong Stock Exchange, according to a disclosure from the HKEx. 

The firm has agreed invest in about 1.62 billion investor subscription shares, worth over $48.6 million at a price of HK$0.30 (€0.03; $0.4) per share. The price is a discount of approximately 41 percent to the closing price of HK$0.510 per share on its last trading day, according to the statement. 

CDH will also acquire an equal amount in convertible bonds taking the aggregate deal value to $97.4 million. The bonds are selling at a discount of approximately 58 percent to the average closing price over its last five days of trading. 

The investment will be used to expand New Focus Auto’s service network and to open new stores, as well as fund the improvement of its operations and satisfy outstanding loans, according to the disclosure. 

China’s automobile industry has been attractive to other private equity investors recently. In July last year, Warburg Pincus invested $200 million in China Auto Rental, a car rental business with 600 service locations across China. 

However, not all of China’s GPs are bullish about the sector. In a recent interview with Private Equity International, chairman and chief executive of PAG Weijian Shan said, “The Achilles’ heel of China’s economy is too much capacity, particularly in the industrial and heavy manufacturing sector.  Look, for example, at the automobile industry.” 

China's automobile sector attracting PE

“China sold probably about 19 million cars last year – so high demand and a large market. But there are 170 car manufacturers in China.  So there is an enormous amount of overcapacity in the automobile sector. If you understand where the growth comes from, you will find that China is attractive. If you don’t understand it you will get burned.”

No one at CDH was available for comment by press time. 

CDH Investments is a China-focused private equity firm with about $8 billion in assets under management, according to PEI's Research & Analytics division.

In February, the firm held a first close on its fifth US dollar fund having raised $1 billion of its $2 billion target from investors. The firm was also behind the controversial bid from Shuanghui International to buy US pork producer Smithfield Food for $7.1 billion in May, sparking questions from US legislators about China's food safety standards. Shuanghui is 30 percent-owned by CDH.