Two automotive subsidiaries of AviChina Industry & Technology Co Ltd, the Hong Kong-listed aviation industrial group on the mainland, are planning a merger deal.

Harbin Dong'an Auto Engine Co Ltd, 70.01 per cent owned by AviChina, said yesterday that it plans to acquire a 100 per cent stake of Harbin Aviation Industry Co Ltd (Hafei), one of China's biggest mini van makers.

Shanghai-listed Dong'an, China's No 1 mini vehicle engine producer, will issue new shares to raise up to 1.2 billion yuan (US$144.9 million) for the acquisition.

Currently, AviChina and China Aero (382) limited - AviChina's wholly-owned affiliate incorporated in the British Virgin Islands - hold 55.73 per cent and 25 per cent shares of Hafei respectively.

The resting shares are controlled by three other small shareholders.

Following the merger, Dong'an and Hafei - both based in Harbin, capital of Northeast China's Helongjiang Province - will be encompassed into a new entity, to be named AviChina Automobile Co Ltd.

"The merger will help enhance our competitiveness as it will bring Dong'an and Hafei, complementary to one another, under unified management in assets, technologies, product development and talents, and will cut affiliated transactions between the two companies," said Liu Cheng, a board member of Dong'an.

"The merger will increase our profit-making capabilities greatly," Liu said.

Dong'an now sells 52 per cent of its engines to Hafei.

Dong'an, with net assets of 1.55 billion yuan (US$187.2 million), now has an annual production capacity of 450,000 engines.

Its net profits amounted to 63 million yuan (US$7.6 million) on core-business revenues of 1.53 billion yuan (US$187 million) during the first half of this year.

Hafei, with net assets of 1.16 billion yuan (US$140.1 million), has an annual production capacity of 300,000 mini vans.

It reported 42 million yuan (US$5.1 million) and 3.44 billion yuan (US$415.5 million) in net profits and core-business revenues respectively during the first six months of this year.

"The merger with Dong'an will open a long-awaited fund-raising channel in the stock market for Hafei, which will facilitate its rapid expansion in China's auto market," said Jia Xinguang, chief analyst with China Automotive Industry Consulting and Development Corp.

Hafei planned to go public in the mainland and Hong Kong stock markets in the middle of the 1990s, but failed to do so.

Both Dong'an and Hafei are partners with Japan's Mitsubishi Motor.

Dong'an runs an engine joint venture with Mitsubishi, and Hafei has technical licensing deals with the Japanese firm to produce own brand Sigma mini vans.

Liu said AviChina is also considering to combine the expected AviChina Automobile Co Ltd and Changhe Automobile Co Ltd, AviChina's other affiliate listed in Shanghai, into one entity.

AviChina hold a 63.88 per cent stake in Changhe, another mini van heavyweight based in Nanchang, capital of East China's Jiangxi Province. Changhe operates a joint venture with Japan's Suzuki Motor Co.

Source: China Daily