KKR to part-exit China car dealership Rundong Auto

The private equity firm will sell 168 million convertible preference shares (CPS) for HK$592.6 million ($76.4 million), equivalent to HK$3.52 per share, to founder Peng Yang. Rudong Fortune Investment, which is controlled by Yang, also agreed to buy 283.9 million ordinary shares and 283.3 million CPS from Greenland Holding Group for HK$2 billion, according to a filing.

The Greenland transaction alone, which has been completed while the KKR deal has not, gave Yang 30% of the voting rights in Rundong Auto, rising to 35.3% assuming full conversion of the CPS. This took Yang's overall ownership to 60% - or 65.3% on full conversion of the CPS - thereby obliging him to make an unconditional cash offer for all outstanding shares of HK$3.52 apiece.

KKR will remain a shareholder in Rundong Auto. Following the Greenland departure, it holds a 27.1% interest in the company, including ordinary shares and CPS. It will retain its 100.1 ordinary shares - worth HK$347.3 million - but the sale of most of the GP's CPS, and the conversion of those shares, will see its overall holding fall to 7%. Entities related to Yang will have 78.4%.

Greenland, a state-owned enterprise primarily engaged in property development, bought a 30% interest in Rundong Auto for HK$1.55 billion in 2015, prompting a change in the company's name. Between 2010 and 2011, KKR's China growth fund participated in four funding rounds for Rundong Auto for a total of $100 million. The company went public in 2014, raising $124 million.

KKR has taken money out of the business - a RMB330 million ($49.6 million) dividend was divided up among the shareholders in 2014 - and a portion of its shares were redesignated as CPS when Greenland invested in order to meet listing requirements. However, the recently agreed transaction appears to be the first instance in which the firm has sold shares in Rundong Auto.

Founded in 1998, Rundong Auto targets the luxury car market. It operated 70 dealerships as of December 2015, most of them for luxury and ultra-luxury brands such as Maserati and Ferrari, BMW and Mini, Jaguar and Land Rover, Audi, Cadillac, Lexus and Chrysler. The company cleared 60,621 units last year, of which 25,583 were luxury and ultra-luxury brand vehicles.

Revenue for the year reached RMB14.9 billion, down from RMB15.5 billion in 2014, while net profit slipped to RMB208.9 million from RMB312.9 million over the same period. Rundong Auto's stock was up 6.1% at HK$3.47 at the end of morning trading on July 4, the first day of trading since the announcements. It is down 6.1% on a 12-month basis, although this compares favorably to the Hang Seng Index.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Open market
• Buyback
• Consumer
• KKR
• automobiles
• Exit
• China