Buffett's BYD endorsement sends shares soaring

HONG KONG (Reuters) - Warren Buffett's investment in Chinese battery maker BYD 1211.HK gives the firm capital and credibility to pursue its ambition of making environmentally friendly hybrid cars, and nearly doubled its share price on Monday.

On Saturday, MidAmerican Energy, a unit of investment guru Buffett's Berkshire Hathaway BRKa.N, agreed to buy a 10 percent stake in BYD for $230 million, which investors took as a solid endorsement for the rapidly expanding firm.

Shares in BYD, which began life as a maker of batteries but now also makes cellphones and automobiles, leapt to a high of HK$16.00 after resuming trade following a morning suspension.

Shares of its handset affiliate BYD Electronic 0285.HK jumped 61 percent. Trading in the stock was suspended for nearly two hours in the morning after the shares surged 72 percent on hopes it would benefit from Buffett's investment.

“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.

The deal gives MidAmerican a foothold in the Hong Kong listed firm, which is developing electric-hybrid cars that can also run on petrol as a back-up fuel. BYD plans to launch hybrid cars in China later this year and in Europe by 2010.

“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.

BYD's shares had 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, although it was largely in line with a 41 percent drop on the index for major Chinese firms listed in Hong Kong .HSCE.

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 been considering 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,” CLSA’s Lai said.

($1=6.843 Yuan)

Editing by Ian Geoghegan