(Bloomberg, Nov 30, 2006) Shanghai Automotive Co. will pay 19.1 billion yuan ($2.4 billion) in stock to buy ventures with General Motors Corp. and Volkswagen AG from its state-owned parent, creating China's biggest publicly traded carmaker. Its shares surged.

SAIC Motor Corp. will receive 3.28 billion shares in exchange for the assets, Shanghai Auto said today in a statement to the city's stock exchange. The transaction was approved by the China Securities Regulatory Commission.

The acquisition will give Shanghai Auto a bigger share of a car market that's set to overtake Japan this year as the world's second largest. China's government has overseen similar asset transfers by state-owned oil explorers and phone companies to create publicly traded units large enough to compete overseas.

``It's logical that they would look for more capital for their development,'' said Yale Zhang, a Shanghai-based analyst at CSM Asia Corp., an automotive consulting firm. ``Shanghai Auto's GM and Volkswagen ventures are doing pretty well this year and the group is developing its own brands as well.''

Shanghai Auto's shares surged by their daily 10 percent limit to a two-year high of 6.78 yuan and changed hands at 6.62 yuan at 2.28 p.m. in Shanghai. The stock has more than doubled this year, outpacing a 78 percent increase in the benchmark Shanghai Composite Index.

SAIC's stake in Shanghai Auto will rise to 83.8 percent after the sale, from 67.6 percent. The parent won't be allowed to sell the shares for 36 months after the transaction, according to today's statement.

Developing Markets

``China is encouraging companies to list in their entirety to reduce transactions within their groups and to enhance transparency,'' said Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing. ``Access to the capital markets also makes it easier to develop new products.''

Vehicle sales in China rose 26 percent in the first 10 months of this year to 5.77 million units, as rising incomes and economic growth spur demand for passenger cars, trucks and sport-utility vehicles. Japan's sales fell 2 percent in the period.

China's government wants to combine the nation's more than 100 automakers into a dozen groups under an industry policy adopted in 2004. SAIC, the country's largest carmaker by sales, also has plans to develop vehicles under its own Roewe and Ssangyong brands.

GM's Gains

GM's sales of cars, vans and trucks surged 47 percent to 453,832 units in the first six months of this year, giving the carmaker a 12.5 percent share of China's vehicle market.

Volkswagen, which has a second venture in northeastern China with FAW Car Co., estimated its share of China's passenger car market at 17.5 percent at the end of September.

SAIC owns 50 percent of Shanghai Volkswagen Co., which makes Santana, Passat, Golf and Polo cars. The Santana, which the venture has been making in China since 1985, was the nation's fifth-most popular model in the first 10 months, with 130,100 cars sold, the China Association of Automobile Manufacturers said.

SAIC owns 30 percent of Shanghai General Motors Co., with the publicly traded unit holding 20 percent of the venture. Shanghai GM makes Buick Excelle sedans, Cadillac luxury cars and GL8 vans in Shanghai. The Excelle was China's second-biggest seller in the 10 months through October, with 140,700 cars sold.

SAIC's Brands

SAIC has spent almost $700 million since 2002 buying overseas brands and factories to develop its own brands independent of GM and Volkswagen. The Chinese company said in April it would invest 13.7 billion yuan to make cars under its own design, moving away from being a low-wage assembler of overseas brands.

The company aims to sell more than 200,000 passenger cars and 400,000 buses and trucks a year under its own brand by 2010.

Roewe is a brand based on the Rover 25 and 75 models bought from collapsed U.K. carmaker MG Rover Group Ltd. for 67 million pounds ($123 million) in 2004.

SAIC also bought 51 percent of South Korea's biggest sport- utility vehicle maker, Ssangyong Motor Co., for $500 million and hired GM's former China President Phil Murtaugh to oversee a global expansion.

SAIC will import the Ssangyong Kyron sport-utility vehicle to China this year, the fifth model to be sold in the country, Murtaugh said in a Nov. 17 interview.

Source:Bloomberg