Shareholders and securities analysts are scratching their heads over how a top automobile marketing group in China managed to burn IPO earnings of 6 billion yuan (US$945 million) in just six months. Many have speculated that Pang Da Automobile Trade Co has shifted to financial leasing services to cope with stalling car sales caused by the government's credit-tightening regulations.
Pang Da became the first automobile trade group listed on the Shanghai Stock Exchange, with an initial public offering on April 28 this year. The successful launch generated a fund of 6 billion yuan, including a staggering 4.2 billion yuan (US$661 million) in excess capital.
Pang Da, which means "mammoth" in Chinese, recently came back under the spotlight when it won approval to float corporate bonds for a new 3.8 billion yuan (US$598 million) fund. Corporate executives have dodged the questions about what happened to the capital from the IPO fund.
Analysts have started poring over the group's latest financial reports, which were released Oct. 31. They found that the group has been saddled with financial leasing operations of over 2 billion yuan (US$315 million), although the company did not include this information in its IPO prospectus, according to an investigative report from 21st Century Business Herald.
Some analysts say that Pang Da may have run into an uphill battle amid government credit-tightening measures that have dulled the effectiveness of their business model. The company traditionally provides a guarantee for car buyers to help them apply for banks loans with repayment for the bank loan plus interest.
Riding on the economic boom and people's rising incomes, Pang Da has grown quickly by using the automobile credit model to help more people purchase vehicles. In September the company was ranked No. 152 on a list of the top 500 enterprises in China and No. 53 in the category of the country's service enterprises.
Company executives explained earlier that the appearance of the financial leasing figure was mainly the result of surging sales of new cars.
Liu Shibo, a Pang Da executive in charge of corporate securities affairs, told reporters that credit is obtained through banks but the company is offering the service of financial leasing. He admitted he was not clear about how financial leasing works.
Securities analysts said the newly disclosed financial information means that the business model followed by the company is no longer as effective, as the central government has squeezed credit to fight inflation and dampen speculative real estate purchases. Growing numbers of enterprises in China have complained of the increasing difficulty of getting bank loans as financial institutions have also found themselves short of funds.
One insider said Pang Da may have spent 2.1 billion yuan (US$330.5 million) to purchase vehicles during the first three quarters of 2011 and then sold the cars to customers.
Some industry analysts said financial leasing could be a measure to cope with the credit squeeze. It is not a long-term solution and Pang Da will face financial pressure as it may take at least year to recoup the fund, they added.
The latest financial figures showed that Pang Da's net profits for the first three quarters of this year slid 10.48% from the same period of 2010.
Liu Shibo 劉世博