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SAIC shares head south as warrant conversion plan flops

By Li Xiang (China Daily)
Updated: 2010-01-09 07:45

Shares of Shanghai Automotive Industry Corp (SAIC) declined sharply on Friday after the automaker failed to raise the planned 6.1 billion yuan ($893 million) in financing through a warrant issuance that expired on Thursday.

SAIC shares fell for the fourth consecutive day by 4.98 percent to 22.92 yuan. The company said that only 1.73 percent of its total 3.9 million warrants issued to shareholders were exercised by Thursday's deadline. That meant SAIC could not cobble up the planned 6.1 billion yuan as all the warrants were not exercised by investors.

"The company's failure to prop up warrant prices must have triggered Friday's sell off," said Sun Fan, an analyst with Goldstate Securities.

SAIC's warrant exercise price was 26.91 yuan, which meant that its shares would have to trade above that price for investors to purchase them. But with share prices hovering below the issue price, investors had no reason to convert their warrants into stocks.

SAIC made a series of positive announcements prior to the warrant exercise period, hoping to boost market sentiment and its stock prices ahead of the expiration date.

The company forecast that its 2009 net profit would jump more than 900 percent from 2008, boosted by a 57 percent year-on-year rise in vehicle sales.

But SAIC's effort to stem the share slide did not succeed as prices dropped 4.86 percent on Tuesday, 1.6 percent Wednesday and 4.44 percent Thursday.

Analysts said the decision by investment funds to cut their holdings in SAIC also prompted the fall in prices.

"Most of the funds cut their holdings as they are not too optimistic on the automobile industry and expect the sector to see a cooling down this year," said Sun.

Vehicle sales in China are expected to slow this year with growth rate of only 5 to 6 percent. Sun said the industry has to maintain a 15 percent growth rate in sales this year in order to make profits.

But analysts are still bullish about the company's performance in the mid- to long-term as the company has announced a series of ambitious plans including the launch of its own brand of purely electric-powered cars that have zero emission in 2012.

"As a leading company of the industry, SAIC still has the potential to grow at possibly 15 percent in sales this year. Its shares are likely to rebound back to 27 to 28 yuan soon," Sun said.