Great Wall Motor Co., Ltd.

The rapid deterioration of the market sentiment index, financing has become the main way for private car companies to break the plight.

On September 21, Great Wall Motor (601633) had a public offering price of 13 yuan per share, and its actual controller, Wei Jianjun, also rose in value to approximately 15.8 billion yuan, ranking greatly ahead of the rich list. However, there are rumors in the industry that Great Wall Motors is not bad.

Great Wall Motors Tianjin Base was announced on August 25th in Tianjin Binhai New Area. This was just three weeks after Great Wall Motor (02333.HK) returned to A-shares to apply for approval through the China Securities Regulatory Commission. Great Wall Motor’s return to A-shares raised funds seven times. Of the projects, four of them are related to the Tianjin base.

Great Wall Motor’s return to the A-share capital has not yet arrived. The Tianjin base has already started, confirming the rumours that the Great Wall Motor Company is not bad. "Return to A shares, we are not bad, mainly to consider the greater development of the Great Wall in the future." A Great Wall car executive once vowed to say.

On August 3, Great Wall Motors announced that the China Securities Regulatory Commission had reviewed and passed its A share plan on the same day. At this point, Great Wall Motor finally returned to the A-share market again in three years. Since this year, the market has changed dramatically. Financing has become the main way for private automakers to crack down on their difficulties.

Great Wall Motor's A-share market is not smooth. As early as June 2008, the company had submitted a return A share application to the China Securities Regulatory Commission, and proposed to issue no more than 122 million A shares on the Shanghai Stock Exchange for a number of spare parts R&D projects. On July 14 of that year, the China Securities Regulatory Commission vetoed the application, and Great Wall Motor’s “back to A” was unfavorable for the first time.

It was widely speculated by industry insiders that the main reason why Great Wall Motor’s A-share IPO was rejected may be that Great Wall Motor planned to finance the car industry at that time. However, the China Securities Regulatory Commission did not consider this to be the main industry of Great Wall Motor, and investment was at risk. It is ironic that the reason why the Great Wall Motor’s return to the A-shares application was rejected three years ago was precisely because of its abundant funds and the relatively low debt-to-equity ratio.

The China Securities Regulatory Commission believes that the Great Wall Motor had sufficient book capital. According to the Great Wall Motor's 2007 financial report, the total monetary fund of Great Wall Motor was approximately RMB 3.312 billion, of which RMB 1.11 billion was still unused for the H-share issuance. The six projects invested by Great Wall Motor Co., Ltd. are expected to cost about 2.755 billion yuan, so they can fully cover six major investment projects. In addition, the asset-liability ratio of Great Wall Motors is not high, and such companies are usually deemed as non-fund-raising necessary. According to the Great Wall Motor’s financial report, the asset-liability ratio of Great Wall Motors (parent company) was 30.65% in 2007, which is far lower than the average asset-liability ratio of listed companies in the auto industry. "The low debt-to-equity ratio has caused the lack of necessity for the company's overall financing. The relevant departments believe that they can completely rely on their own cash flow to meet their operational cash flow needs," said an auto industry analyst.

Great Wall Motor spokesman Shang Yugui also revealed: "There were many reasons for being rejected at the time, including the downturn in the stock market, the Great Wall was not short of funds, and many other complicated factors." So it was not listed.

After encountering the veto by the regulatory authorities, the Great Wall Motors has devoted enough time to “spend money” in the next few years. Since last year, Great Wall Motor has accelerated the pace of building a new factory in Tianjin, and has set an aggressive target of producing and selling more than 2 million vehicles and 1.8 million vehicles in the next five years. This base, built in three phases until 2015, will cost 8.5 billion yuan in total. After the generous investment, the financial status of Great Wall Motor also changed year by year. From December 31, 2008 to December 31, 2010, the liabilities were 3.679 billion yuan, 7.131 billion yuan, and 13.298 billion yuan respectively. As of March 31 this year, Great Wall Motor's liabilities had reached 14.887 billion yuan. Correspondingly, the asset-liability ratio of Great Wall Motor increased from 30.65% at the end of 2007 to 55.85% at the end of 2010. While the rapidly rising debt-to-asset ratio meets the preconditions for listing financing, it has also leaked the pressure of the Great Wall’s funding crisis.

This return to the A-shares is Great Wall Motor's renewed efforts after three years. Great Wall Motor will become the second private auto company after BYD (002594) to be listed on the A-shares and H-shares simultaneously. According to the plan, after the fund-raising project is completed and smoothly put into production, it will bring new operating income to Great Wall Motor over RMB 8.54 billion annually, and the new net profit will exceed RMB 980 million. However, judging from the draft prospectus issued on July 29, the amount of financing of approximately HK$3.6 billion (2.974 billion yuan) is still less than 60% of the investment in the proposed technology center. However, Great Wall Motor Co., Ltd. announced that after deducting expenses, the proceeds from the A-share issuance will not be sufficient to meet the funds required for the project, and the company will use internal resources or bank loans for repayment.

After the Great Wall Motor A shares IPO was approved, especially after the listing of the A shares and H shares, Great Wall Motors Chairman Wei Jianjun remained the largest shareholder of the Great Wall. According to statistics, the Great Wall of Innovation holds a 62.27% stake in Great Wall Motors, a controlling shareholder; Wei Jianjun holds 62.35% of the equity in the Great Wall of Innovation and is the actual controller of Great Wall Motors. After the issuance, the equity controlled by Wei Jianjun will be diluted to 56.04%, but it is still in absolute control.

In the past more than ten years, Great Wall Motors’ assets have grown at an alarming rate, but each transfer of shares seems to be in a hurry, with varying degrees of discounts. According to the opinions of people in the industry, when a company with good performance growth momentum shares, the metropolis will take into account the company's future growth rate and development space, and there will be different levels of premium. Although in the prospectus report, Great Wall Motor Co., Ltd. claims that each prior equity transfer was legal and true, but it seems that there is still suspicion of selling collective assets.

According to statistics, the Great Wall Co., Ltd. was contracted by Wei Jianjun from July 1990 to the end of 1999. According to the contract signed at that time, Wei Jianjun paid the contracting fee to the government every year. After the profit after tax was handed in, the remaining 10% was awarded as a contractor.

In 1998, the first equity change of Great Wall Co., Ltd. was made due to the decision of the Hebei provincial government to release the urban collective enterprises as soon as possible to complete the reform of the property rights system. At this time, Wei Jianjun began to "turn around" and turned from a contractor to a shareholder (with the bonus funds from contracted operations to obtain shares). The report of the Great Wall Motors’ prospectus stated that by the end of 1998, Wei Jianjun had held 25% of the company's shares.

In 1999, as the then absolute controller, Nandaiyuan Township Finance Bureau and Wei Jianjun signed the "Equity Transfer Agreement," and transferred 21% of the equity of Great Wall Co., Ltd., which was held on behalf of the township government, to Wei Jianjun. At this point, Wei Jianjun’s shareholding ratio rose to 46%.

In 2001, the labor union passed a resolution that transferred 10% of the shares it held to Wei Jianyi, the father of Wei Jianjun, 9% to Wei Jianjun, and Chen Yuzhi, the mother of Wei Jianjun, and Han Xuejuan, the wife of Wei Jianjun, 0.5%. In the same year, Great Wall Co., Ltd. was officially changed into a stock company. According to the relevant accounting firm at that time, the registered capital of the company has increased from 800,000 yuan at the time of its establishment to 171 million yuan. In 2003, the company officially changed its name to Great Wall Motor Co., Ltd.

In 2003, Great Wall Motor issued an H-share listing. The equity of Wei Jianjun and his family members was diluted for the first time, but it was still as high as 40.45%. In 2004, the management center transferred the 1.78% stake in the company to the ant logistics controlled by Wei Jianjun. From this point on, ants logistics began to appear in the list of shareholders of Great Wall Motors.

In 2005, a company named Walter began to appear. Wei Jianjun, Wei Deyi, Chen Yuzhi, and Han Xuejuan all transferred all their shares in Great Wall Motors to Walter. As a result, Great Wall Motor's list of shareholders looks simpler, Walter, management center, ant logistics, foreign shares. The names of Wei Jianjun and his family no longer appear.

In 2006, the Economic Management Center once again transferred 2% of the equity of Great Wall Motors to Ant Logistics. In 2008, Walter changed its name to Baoding Innovation Great Wall Asset Management Co., Ltd. (hereinafter referred to as the “Innovation Great Wall”). The Management Center also transferred all of its equity held by Great Wall Motors to its wholly-owned subsidiary, Baoding Ruifeng. In the same year, Ant Logistics, which was controlled by Wei Jianjun, transferred its equity holdings to the Great Wall of Innovation.

Until 2010, the merger of individuals and collectives began. Great Wall Motor Co., Ltd., which is known as guaranteeing the stability of the company's control, decided to absorb the merger of the two largest shareholders, the Great Wall of Innovation and Baoding Ruifeng. The final management center holds a 37.02% stake in the Great Wall of Innovation. Wei Jianjun and his family hold the remaining 62.98%. According to the innovation Great Wall's 62.27% stake in Great Wall Motor, Wei Jianjun and his family eventually held 39.84% of the equity of Great Wall Motors; and the shareholdings of collective assets of South Dayuan Township also fell from 65% in the past ten years. To 23.05%.

Since the beginning of this year, the overall decline in the automotive market has brought a greater impact on domestic automakers with indebted brands. Debt levels have increased and financing has shrunk. This is a common situation for privately-owned car companies listed on the domestic market. But unlike other self-owned car companies that have a large demand for cash, Great Wall Motors claims that the desire for funding is not strong. According to Wang Fengying, president of Great Wall Motors, the return of Great Wall Motors’ money-losing A-shares to the A-share market is based on the fact that Great Wall Motor will focus more on the mainland market in the next five years, and returning A-shares will enhance Great Wall Motor’s brand reputation in the Mainland. Degree will be helpful.

However, Great Wall Motors, which is not bad, is still unable to get rid of financial cravings. A Great Wall Motors executive stated in private that the prosperity of the Chinese auto market is still about 10 years old. At present, the international market is in a state of uncertainty. Great Wall Motors, which had been concerned about exports, should also devote more energy to the domestic market. It is bound to affect the development of enterprises.

Great Wall Motor has demonstrated different qualities from companies such as Chery, Geely, and BYD in terms of corporate strategy and product planning. This privately-owned car company, headquartered in Baoding, Hebei Province, was once conservative in development. Starting from the start of the construction of a factory in Tianjin last year, Great Wall Motors has gradually pursued a large-scale development path and gradually turned to a radical development path.

From conservative to radical, Great Wall Motor has greater demand for funds. Shang Yugui said frankly that Great Wall Motors faces huge investment demand, and the funds invested by the Great Wall in the future will require about 20 billion yuan. "In addition to its own funds, it is very important to find new financing channels," Shang Yugui said.

In recent years, Great Wall Motor’s return to A-shares has been mainly due to the formation of three types of automotive product categories, and the market has become increasingly focused on the domestic market. At present, Great Wall Motor Co., Ltd. has formed a product mix of SUVs, cars, pickups and other three categories. Among them, in the field of SUV and pickup trucks, Great Wall Motor is the largest producer in China with a market share of 11.3% and 27.1% respectively. Although Great Wall Motor has established its own position in the field of pickups and SUVs, it is still the sedan that determines its final market position, and it is also a short board for Great Wall Motors. The scale of production and sales is relatively small, and the Great Wall is determined to remedy the situation.

The overall development strategy of Great Wall Motors is to focus on the three major categories of pickups, SUVs, and cars, maintain the absolute advantages of pickup trucks, consolidate the leading position of SUVs, promote the rapid rise of cars, enhance the brand value through the advantages of category, and eventually develop into an independent R&D capability and complete product. The system's internationalization of large-scale automotive companies. Since the beginning of last year, the determination of the Great Wall to enter the mainstream of passenger cars - the sedan field - has gradually revealed, and the adjustment of its product structure has also been significantly accelerated. The Tengyi series is the brand of high-end passenger cars that Great Wall Motor has placed high hopes on. At the same time, the Great Wall has been focusing on cooperation with well-known international suppliers this year. Between June and July, it has signed strategic agreements with Mahle, Valeo and Baosteel Group to expand the supporting system.

The data shows that in 2008, SUVs and pickup trucks were the major sources of vehicle sales revenue for Great Wall Motor, accounting for more than 90% of the total. However, after 2009, the proportion of cars with higher profits in total vehicle sales began to increase, and by 2010 it exceeded the sales volume and income level of pickup trucks.

In spite of this, the sedan business, which began to be a real force last year, is still in its growth phase and is currently a development risk for the Great Wall. What will happen in the next two years? Nobody can see it. However, from the perspective of self-owned brands such as BYD and Chery, after the rapid growth, they all experienced a bottleneck in growth and are still in a difficult transition. The Great Wall certainly is no exception. Behind the difficult transition, there is an urgent clamour for funding.

Great Wall Motors claimed to have been looking for a good opportunity to go public, but it is obviously not a good time. With a series of preferential policies withdrawing, this year's auto market has turned sharply. Great Wall Motor’s raised funds will continue to increase production capacity or bring greater risks to the company. Although Great Wall has strong profitability in its own brands, such a huge amount of investment will also drag down Great Wall Motor with a total asset value of only RMB 17.4 billion. In the first quarter of this year, Great Wall Motor’s “non-current liabilities due within one year” has reached 25.9269 million yuan. Even in the first quarter, Great Wall Motor made a profit of 8 billion yuan, which could not eliminate the worries of the industry's rapid growth in its liabilities.

In addition, different from the controversy before BYD's return to A-shares, Great Wall Motor’s good performance has been widely viewed by the industry. However, it is worth noting that the projects invested by Great Wall Motors to raise funds are far from being as safe as BYD. The main reason is that the funds raised by BYD are mainly invested in the development of new energy products that represent the direction of future industry development. At the same time, Great Wall Motors has invested more in unpredictable car production.

According to statistics, sales of Great Wall Motor increased by 39.9% year-on-year in the first half of the year, including 101109 vehicles sold by the Tengyi Group, an increase of 100% year-on-year. In other words, Great Wall Motor’s substantial growth in recent years has contributed a lot to the car project. However, people in the industry said that in view of the overall development trend of the auto industry at present, the self-owned brand cars are facing an embarrassing situation, and the future prospects are difficult to predict.

Great Wall Motor spokesman Shi Yugui said in an interview, “If the company smoothly returns to A shares, its production capacity will expand from the original annual output of 400,000 to 800,000. But even if they return to A shares, the company will have to The capacity has been increased to 800,000 in recent years." And this investment plan has also been analyzed and warned by a number of securities analysts.

Relevant investigations show that the market share of self-owned brand cars is showing a declining trend. Under pressure from competitors such as joint venture brands, Chonggao also faces certain difficulties. "For many years, Great Wall Motors is the undoubted leader in the economical SUV market segment, but nobody will dare to say whether it can do well if it enters into the development of the sedan market." A market official said that although sales of the Tengyi series are currently underway, Looking good, but more still rely on promotions and cost-effective support, "it is estimated that the Great Wall of the business will not make much money, but if you want to do a good job, the future investment will be great." The person said this. Now the industry's biggest challenge to Great Wall Motor’s development after returning to A-shares is in its car project, and these concerns are also based on merit.

However, in the face of doubts voiced by the industry, Great Wall Motors still showed strong confidence. "I believe that after the return of A shares, Great Wall Motor will be able to get better development, especially for the sedan project. With the continuous increase in investment in R&D and production, we will create more products that will satisfy consumers." Great Wall Motors Senior officials told reporters.

An analyst, who did not want to be named, said that in view of the current domestic auto market entering a period of gentle growth, the era of sustained rapid growth is now gone. For Great Wall Motor, it is feared that doubled production capacity will face the risk of shorting. In its prospectus, Great Wall Motors has also warned of this risk.

On August 3, Great Wall Motor’s A-share IPO was approved. The Hong Kong stock market does not appear to be excited. On the following day, the Great Wall Motors Hong Kong stocks opened higher at HK$11.88, and then they soared to HK$12.24 and closed at HK$11.52. After the issuance price of Great Wall Motor’s A shares was set at 13 yuan on September 21, Hong Kong stocks opened at HK$10.20, rushing to a maximum of HK$10.80 and closing at HK$10.48. Industry analysts pointed out that there are many positive reasons for the lack of positive performance of the H share price. The important point is that since the domestic auto market performance has been sluggish this year, investors are not optimistic.