China auto dealer Zhongsheng halves HK IPO: source

HONG KONG Tue Mar 9, 2010 6:24am EST

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HONG KONG (Reuters) - Zhongsheng Group, a Chinese dealership providing services to carmakers, halved its Hong Kong initial public offering to $474 million to generate interest in the issue, a source close to the deal said on Tuesday.

The reduction comes as once-booming markets in both Shanghai and Hong Kong, which raised more funds in IPOs than anywhere else in the world last year, have started to weaken.

Zhongsheng had initially planned to start its Hong Kong IPO roadshow on March 3, but postponed the IPO citing market conditions, according to a note obtained by Reuters on March 2.

Zhongsheng, which counts Japan's Toyota Motor Corp (7203.T) among its key customers, plans to sell 286.2 million shares, or 15.5 percent of its enlarged share capital, at an indicative price range of HK$9.54-HK$12.83 per share, the source said.

The offer price values Zhongsheng at 14.2 times to 19 times 2010 forecast earnings. By comparison, Hong Kong-based distributor Dah Chong Hong Holdings (1828.HK) trades at about 12 times 2010 forecast earnings.

The company originally aimed to sell 25 percent of its enlarged share capital, but will now sell 15.5 percent of the capital, another source close to the deal said.

Zhongsheng's founders and private equity firm General Atlantic will not sell any existing shares in the IPO. Instead, General Atlantic plans to buy more to lift its stake in Zhongsheng on its IPO offering, the second source said.

Zhongsheng's founding partners Huang Yi and Li Guoqiang together hold an 85 percent stake, while General Atlantic holds 15 percent, underwriter UBS (UBSN.VX) said in a report.

Zhongsheng aims to list in Hong Kong on March 26, the sources said.

The sources declined to be named because they were not authorized to speak to the media. A spokeswoman from Zhongsheng declined comment.

Zhongsheng sent invitations to investors to join its IPO presentation to be held on Wednesday, according to a document sent out on Tuesday.

Morgan Stanley (MS.N), UBS (UBSN.VX) and BOC International are handling the IPO.

Zhongsheng mainly provides sales, spare parts, services and survey businesses for major international car brands in China.

Zhongsheng focuses on mid to high-end brands, including Audi, General Motors, Honda, Lexus, Mercedes-Benz and Nissan.

Analysts have said the company's ties with Toyota would affect investor views of the offering, given the recent Toyota recall issue.

Zhongsheng relies on Toyota and Lexus for the majority of its sales. In the first nine months of 2009, these two brands accounted for 51 percent and 17 percent of Zhongsheng's new car sales, respectively.

China's passenger car sales in February rose 55 percent from a year earlier, the official industry association said on Tuesday, as policy incentives continued to lure buyers into showrooms during the holidays.

(US$1 = HK$7.75)

(Additional reporting by Fiona Lau; Editing by Jacqueline Wong and Will Waterman)

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