SAIC mulls shifting truck assets to Shanghai Diesel

By Fang Yan

SHANGHAI (Reuters) - SAIC Motor (600104.SS), China's largest automaker, is considering shifting its commercial vehicle assets to Shanghai Diesel Engine (600841.SS), which it is in the process of taking over, a source familiar with the situation said on Friday.

The proposal, still in the early stages of review, would follow a planned hiving off of the SAIC group's auto parts business to another unit in an 8.8 billion yuan ($1.29 billion) deal, as it strives to build SAIC Motor's passenger car business into a world-class competitor.

The move would involve an issue of new shares by Shanghai Diesel Engine to SAIC Motor in exchange for control of heavy-duty truck maker SAIC-Iveco Hongyan Commercial Vehicle Co and other assets, the source told Reuters.

An SAIC Motor spokeswoman said such an asset transfer was not under discussion at the company.

"We have never discussed such a plan. We will announce all major restructuring deals in a timely manner," she said.

The source said, however, that senior officials had begun considering transferring to Shanghai Diesel all of SAIC Motor's major commercial vehicle production assets, which also include Yuejin brand trucks and Shanghai Huizhong Automotive Manufacturing Co, which makes light buses and heavy-duty trucks.

"The SAIC group wants to further streamline its businesses," the source said.

"It has got approval to inject its auto part assets into Shanghai Bashi (600741.SS) and the next step would be folding its commercial vehicle operations into Shanghai Diesel."

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He added no timetable or detailed financial plans had been worked out, given that the acquisition of Shanghai Diesel had not yet been completed, and any asset transfer would require government approval.

Sales of trucks and buses in China, the world's second-largest vehicle market, have been growing strongly as the economy booms, although a sputtering global economy is dragging on domestic growth.

SAIC-Iveco Hongyan, set up in June 2007 as a three-way tie-up among SAIC Motor, Fiat SpA's (FIA.MI) truck unit Iveco and Chongqing Heavy Vehicle Group, has invested more than 2 billion yuan in a truck production facility with an annual capacity of 40,000 units, according to its website wwww.sih.cq.cn.

SAIC Motor signed an agreement in December 2007 to buy a controlling stake in Shanghai Diesel, an engine maker, from Shanghai Electric Group Co (2727.HK) and the deal received government approval this week.

The transfer of commercial vehicle production to Shanghai Diesel, if it proceeds, would further streamline the group's business and make SAIC Motor a passenger car specialist.

SAIC Motor's car ventures with General Motors GM.N and Volkswagen AG (VOWG.DE) have been the country's two biggest car sellers for years.