The International Herald Tribune reports that Shanghai Automotive is selling $1.06b worth of junk bonds to fund its expansion plans. China's largest automaker says it needs the cash to develop its own-brand Roewe sedans, repay debt and expand commercial-vehicle production. Details of the offering are sketchy at best; Shanghai didn't reveal the sale date, how many call warrants investors would receive or the trigger price. Oh, and Shanghai's debt has not yet been assessed by any of the three largest global credit rating companies. Still, if you have faith in the Chinese auto market– which just passed Japan to become the world's number two (after the U.S.)– it could be a good deal. Thanks to laws requiring foreign automakers to partner with domestic producers, Shanghai has its fingers in a lot of pies: General Motors (Shaghai GM, SAIC-GM-Wuling Automobile), Volkswagen (Shanghai Volkswagen Automotive) and Ssang Yong Motor Company. On the downside, the emphasis on the new Rover-based Roewe 750 sedan may not pan out. Shanghai says it sold a little over 1000 750s per month in its first four months of production.
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Shanghai Automotive also has one other thing going; the announced merger with Nanjing Automobile – read HERE.
Shanghai Automotive is considered by most auto analysts to be the best-managed auto manufacturer in China, and the fact that they have so many partnerships going is probably good news for them when/if the partners falter. As is the case with Nanjing Automobile.
B Moore – Autosavant.net
Hey why not? They can’t be any riskier than GM’s bonds.
Products coming from China are Junk; the only change is recently people are buying it. Their economic growth has made their largest assets (land, people) Junk due to pollution. No surprise that a Chinese company would have Junk financials also. Before you ask, I have in fact been to China.
Why are you describing the bonds as "junk"? The corporation is solvent isn't it?
hal:
A junk bond (or high-yield bond) is one with a credit rating of BB or lower and that carries higher risk of interest or principal default than better rated investment grade bonds. Junk bonds are issued in leveraged buyouts and other takeovers by companies without long track records of sales and earnings, or by those with questionable credit strength.
I am interested in finding our about Chinese automakers, a blanket dismissal of Chinese cars as "Junk" doesn't help. I know some Chinese cars are crap but there are dozens of manufacturers, some of them are making excellent cars in partnership with western companies, pretty soon they will be exporting cars and building plants in the US.