September 29, 2008 / 7:09 AM / 11 years ago

UPDATE 2-Buffett's BYD endorsement sends shares soaring

(Adds MidAmerican, BYD comments, updates share action)

By Joanne Chiu and Alison Leung

HONG KONG, Sept 29 (Reuters) - Billionaire Warren Buffett’s investment in Chinese battery maker BYD (1211.HK) has given the firm cash and credibility to pursue an ambition of making “green” cars, analysts said, helping its shares nearly double on Monday.

Shares in BYD, which began life as a maker of rechargeable batteries but now also makes mobile phones and automobiles, soared 90 percent at one stage after resuming trade following a morning suspension. They ended 42 percent higher at HK$11.90.

On Saturday, MidAmerican Energy — a unit of investment guru Buffett’s Berkshire Hathaway (BRKa.N) — agreed to buy a 10 percent stake in the company for $230 million, which investors took as an endorsement for a rapidly growing firm. [ID:nN26317503]

The deal gives MidAmerican a foothold in the Hong Kong-listed company, which is developing electric and electric-hybrid cars that can also run on petrol as a back-up fuel.

“Buffett is a respectable global investor and his investment will help promote our products around the world,” BYD chairman Wang Chuanfu told reporters.

Established in China’s southern booming city of Shenzhen in 1995, BYD plans to launch its “F3 Dual-Mode” hybrid cars in China later this year and Europe by 2010.

Electric or hybrid cars are seen as ways for consumers and governments to tackle carbon dioxide emissions and sky-high gasoline prices. The likes of Toyota (7203.T) have invested in hybrid car technology for years.

Now, with MidAmerican’s help, BYD hopes to speed up the mass commercial sale of its cars in the United States, originally scheduled doe 2011, Wang said without elaborating.

“What Buffett’s interested in is BYD’s automobile manufacturing business, which has great potential in the long term, although its contribution is still limited currently,” said Jenny Lai, a CLSA analyst.

Shares of its handset unit BYD Electronic (0285.HK) leapt 21 percent, also following a brief halt.

R&D CAPABILITY

MidAmerican, a global provider of energy services, is also interested in BYD’s research capability in rapid-charge and rechargeable battery technology, and power storage technology.

On Monday, MidAmerican Chairman David Sokol told reporters his firm was keen to expand its existing investment, if the opportunity ever arose.

“We’re very impressed with its ability to turn research and development into an active product at a very rapid pace,” Sokol said.

Analysts said Buffett’s name itself carried a stamp of approval for a firm little-known outside of China and Hong Kong.

“The endorsement by someone widely considered the most successful investor in our age could dispel the market’s concern on its non-fundamentals side,” Merrill Lynch said in a research report on Monday.

Still, outside of its day-to-day business, BYD has run into problems with investors. Its shares have lost 45 percent of their value in the past year to Friday’s close, partly due to legal disputes between BYD and rival Foxconn International Holdings (2038.HK) over alleged patent infringement.

The stock lagged a 30 percent loss on the blue chip Hang Seng Index .HSI during the same period.

Analysts estimated BDY will need more than 8 billion yuan ($1.2 billion) this year and next in capital expenditure on its car manufacturing business.

BYD, which raised $758 million spinning off its handset component unit BYD Electronic (International) last December, has considered selling domestic A shares in mainland China to expand its funding channels.

The company aims to double its car sales in each of the next two years, from an estimated 200,000 cars in 2008, to 800,000 units in 2010, BNP Paribas analyst Frederick Wong said.

“It will be difficult for BYD to launch its A share plan in the short term since the weak market situation is expected to last for a while,” Lai said. ($1=6.843 Yuan)

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