China Yongda Automobiles Services Holdings Ltd., China’s biggest distributor of BMW cars, canceled plans to raise as much as $430 million in an initial public offering in Hong Kong because of slumping stock prices.
The issuance was withdrawn due to “the recent deterioration of the equity market,” Yongda said in a filing on Hong Kong’s stock exchange today. The benchmark Hang Seng Index has fallen 11 percent this month on concern China’s economic slowdown is deepening and Europe’s debt crisis will worsen. Yongda said it may revive the IPO when the environment improves.
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.”
Companies have raised almost $13 billion in Asia this year, down from about $40 billion a year earlier and the slowest start to a year since 2009, according to data compiled by Bloomberg.
Issuers are instead tapping the bond market, with dollar-denominated fundraising in the region reaching a monthly record in April. Corporates have sold more than $51 billion in bonds so far this year, compared to $36 billion for the same period in 2011, the data show.
Before Yongda’s cancellation, the largest IPO to be scrapped in the city was a $39 million offering by China Putian Food Holdings Ltd., data compiled by Bloomberg show. The offering was scrapped in March because of “unexpected market volatility,” according to a statement at the time. Last month, M&L Hospitality Trusts postponed a Singapore initial offering of as much as $373 million because demand for the shares was “not ideal,” according to a statement from the company.
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 34 percent and Baoxin Auto is down 23 percent. Zhongsheng has declined about 7 percent.
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:US) 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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