Jianghuai Auto Again Denies Restructuring with Chery

After issuing an unclear clarification in June, Anhui Jianghuai Automobile Co., Ltd. (JAC, SHSE: 600418) again denied its reported restructuring with Chery Automobile Co., Ltd. on July 29, 2009. This time, JAC quoted the work schedule of the local state-owned assets supervision and administration commission, which did not include a restructuring plan in the short term, pointed out the company.

The first clarifying announcement came out on June 2, when JAC said that it temporarily had no plan to kick off a restructuring with Chery, and does not know whether such transaction will occur in the coming three months.

Although JAC repeatedly denied the restructuring story as an involved party, it has benefited from the news. Its stock reached limit up on July 23, and closed at CNY 6.88 apiece on July 29.

The rampant talks about the restructuring arose long ago. Headquartered both in Anhui Province, central China, JAC and Chery are respectively strong in terms of commercial cars and passenger vehicles.

Lately, the Anhui government released a revitalizing plan for the local automobile industry, encouraging restructuring of JAC, Chery, Anhui Hualing Automobile Co., Ltd., and Anhui Quanchai Engine Co., Ltd. (SHSE: 600218).

The plan even worked out a timetable for the restructuring, which would be carried out in December 2009. Earlier this year, the Chinese government made clear its support for regional mergers carried out by Chery.

While the rampant talks were being spread wildly, reporters interviewed Zuo Yan'an, board chairman of JAC and Anhui Jianghuai Automobile Group Co. Ltd., in late June.

He disclosed that the company had not contacted with Chery on a possible restructuring, which were anticipated by many brokers. Because both sides were government-controlled, they themselves were unable to decide their fates.

However, JAC would support a restructuring proposed by government regulators, which would avoid repeated construction and bolster up the cluster effect in the local auto industry.

But, Zuo emphasized that the restructuring should be beneficial to the allocation of resources and under the guidance of market rules, and not carried out by force.

The restructuring form might be diversified and not limited to mergers and acquisitions. For example, both sides could launch project cooperation or business consolidation.

As to the other involved party Chery, the company has restarted its plan to float shares on the Chinese Mainland capital market. Its assistant general manager Jin Yibo points out that Chery has advantages in terms of sedans and engines. A restructuring with JAC will boost the local auto industry.

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