(Yicai Global) June 3 -- The commercial vehicle unit under Chinese carmaker Zhejiang Geely Holding Group did make contact with listed auto manufacturer Hualing Xingma Automobile Group, an insider has confirmed amid reports the Geely arm will buy all of the equity held by Hualing’s controlling shareholder.

The source confirmed to Yicai Global that Geely initiated talks but declined to provide further information as it could put Hualing in breach of information disclosure rules for listed companies.

Hualing’s controlling shareholder Anhui Xingma Automobile Group and its wholly owned subsidiary Ma’anshan Huashen Building Material Industry plan to sell their entire 15.25 percent stake in the listed firm through public solicitation, the listed truck maker said in a statement on May 23. The sellers hoped to pick up at least CNY5.14 (72 US cents) apiece for the nearly 85 million shares.

Shares in Hualing Xingma [SHA:600375] rose from just over CNY5 at the start of May to finish the month above CNY8. Its stock was down 4.4 percent at CNY8.14 when the markets closed for lunch today, after hitting a near five-year intra-day high yesterday.

The acquisition could give Geely the resources it needs to better position itself in the truckmaking industry, given it only has one firm in the sector, a new-energy vehicle manufacturer acquired in 2016 and now named Geely Sichuan Commercial Vehicle.

Both of the companies selling the Hualing Xingma stock are controlled by the People’s Government of Ma’anshan Municipality, according to public information. The target has been struggling to stay on top of its debt-to-assets ratio for several years and profit dived 27.3 percent to less than CNY433 million (USD61 million) last year, with revenue falling 12.5 percent to CNY6.4 billion (USD898 million). It lost CNY1.1 billion in the first quarter of 2020, largely due to the impact of Covid-19.

It was the sellers themselves who decided that Hualing Xingma needed to bring in a strategic investor, a member of the target’s securities department told Yicai Global in a phone interview. The move could help alleviate financial woes and the sellers were intent on finding a buyer whose business correlates with the target’s, the employee added.

Hualing Xingma sold 18,000 medium- and heavy-duty trucks last year. While this is a small total compared to competitors, the firm holds several self-developed technologies related to engines, transmissions and axles.

Editors: Tang Shihua, James Boynton