(Yicai) Aug. 25 -- Dongfeng Motor Group’s shares soared after the Chinese carmaker's parent company revealed plans to take it private and float its electric vehicle unit Voyah through a listing by introduction in Hong Kong.

After surging by as much as 69 percent in Hong Kong earlier today, Dongfeng Motor [HKG: 0489] closed up 54 percent at HKD9.20 (USD1.18) a share. Trading in the stock resumed after a two-week halt. The company has a market capitalization of around HKD76 billion (USD9.7 billion), following an almost 150 percent rally in the shares so far this year.

Dongfeng Motor will distribute its entire almost 80 percent stake in Voyah to shareholders on a pro-rata basis, alongside a cash consideration, its Wuhan-based parent announced on Aug. 22. Shareholders will receive about HKD10.85 (USD1.39) per share, comprising HKD6.68 (86 US cents) in cash and equity in the unit worth HKD4.17 per share. 

The deal represents an 82 percent premium on Dongfeng Motor's closing price of HKD5.97 on Aug. 8, when the shares were suspended from trading.

Due to industry transformation pains and other factors, Dongfeng Motor's valuation has remained subdued in recent years, with its market cap significantly below net asset value, according to the company, which noted that its market cap was HKD39.1 billion as of July 31, with a price-to-book ratio of just 0.25, meaning its stock market listing no longer serves a purpose.

The privatization plan stems from two key factors, a source close to Dongfeng Motor told Yicai. First, the company's stock has been persistently undervalued, rendering it ineffective as a financing vehicle, and second, the firm is transitioning toward new energy vehicles and has initiated internal reforms, the person said.

Regulatory constraints limit the company’s integration and restructuring as a listed business, the source pointed out, so the dual objectives of going private are to propel Voyah into the capital markets and to facilitate further internal consolidation.

A listing by introduction involves applying to float shareholders’ existing equity without issuing new shares or raising capital. Analysts said it will give Voyah a standalone market platform while avoiding equity dilution.

Privatizations by Chinese state-owned companies on Hong Kong’s market have become more common, with notable examples such as China International Marine Containers Vehicles and China National Cereals, Oils and Foodstuffs' packaging unit, which delisted in June last year and this April, respectively.

Dongfeng Motor has a diverse portfolio, including commercial vehicles, passenger cars, and auto parts. It has joint ventures with Honda Motor, Nissan Motor, Stellantis, and others.

The company’s vehicle sales fell 15 percent to 824,000 units in the first half from a year earlier. Net profit plunged 92 percent to CNY55 million (USD7.7 million) despite revenue climbing 6.6 percent to CNY54.5 billion (USD7.7 billion).

Established in 2018, Voyah's vehicle sales soared 88 percent to 68,300 in the seven months ended July 31 from a year ago, after surging 70 percent to 85,700 last year from 2023.

Editor: Martin Kadiev