(Yicai Global) April 26 -- Shares in Hangzhou Cable soared to the exchange-imposed daily limit today after the Chinese cable manufacturer announced that it will sell a controlling stake to an investment firm owned by the Guangzhou municipal government.

Hangzhou Cable’s stock price [SHA:603618] surged by 10 percent to CNY6.49 (USD1), giving it a market capitalization of CNY4 billion (USD616.4 million).

Chairman Sun Qingyan will sell the 29.95 percent equity, equivalent to around 207 million shares, held by Yongtong Holdings, a firm he and his family runs, to Guangzhou Industrial Investment Holding Group, Hangzhou Cable said yesterday. No reasons were given as to why Sun is selling up.

Although final pricing will be determined only once Guangzhou Industrial completes a due diligence audit and assessment, it is expected to be around CNY7.70 (USD1.20) per share. This would be an 18 percent premium on today’s closing price, putting the purchase price at about CNY1.55 billion (USD238.9 million).

Guangzhou Industrial’s interest in Hangzhou Cable is likely to stem from the recent decision by the Guangzhou government to set up a rail transit-focused investment group in the Guangdong-Hong Kong-Macao Greater Bay Area. This will accelerate the formation an entire railway industry and supply chain in the southern Chinese economic powerhouse and boost Hangzhou Cable’s purchase orders for the wires and cable needed by the railway industry in the area.

Upon completion of the deal, Guangzhou Industrial will take control of the firm by appointing five board members, including the chairman, financial director and deputy general manager, who will have 55 percent of voting rights.

Sun has committed to net profit of CNY120 million (USD18.5 million) this year, CNY125 million in 2022 and CNY130 million in 2023, with a total of no less than CNY375 million (USD57.8 million).

Founded in 1978, Guangzhou Industrial logged profit of CNY1.3 billion (USD200 million) in the first three quarters last year on revenue of CNY49.3 billion (USD7.6 billion). It is also the parent firm of heavy equipment manufacturer Sunward Equipment Group and Jinming Precision Machinery.

Editor: Kim Taylor