Xiang Torch to Build the King of China's Auto Parts
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Weichai Power's merger with Hunan Torch and the subsequent stock exchange reform are currently being discussed on Panorama Network. Investors have already raised nearly 220 questions, and senior executives from both companies and their sponsors have responded to about half of them. The main concerns from investors revolve around the merger plan and the future development of Weifang Diesel following the integration.
Chairman Tan Xuguang of Weichai Power and Chairman of Hunan Torch Motor Group expressed confidence in the merger, stating that if the plan is successfully implemented, it will unlock greater synergy and strategic value for the group’s core assets. The new company is expected to form the largest industrial cluster in powertrain, transmission, and axle systems, becoming China’s most powerful auto parts group.
The merger involves an IPO combined with a share exchange. Weichai Power will absorb Hunan Torch, issuing A-shares to all shareholders except Weichai Investment. After the merger, Hunan Torch will be delisted, and the surviving company will apply for listing on the Shenzhen Stock Exchange. The conversion ratio is set at 3.53:1, with Weifang Diesel shares priced at RMB 20.47 and Hunan Torch shares at RMB 5.80 per share.
Zhuzhou State-owned Assets will issue additional shares to tradable shareholders, offering 0.35 shares for every 10 shares held. This process will occur simultaneously, without any phased implementation. Additionally, tradable shareholders can choose to receive cash compensation at RMB 5.05 per share, though Zhuzhou State-owned Assets has opted out of this option.
After the merger, Hunan Torch shareholders will become A-shareholders of Weichai Power, alongside Weichai Investment and those who choose the cash option. Weichai Power will then become a dual-listed A and H-share company, fully floating in the A-share market.
Investors questioned why Weichai Power chose to merge with Hunan Torch, and why Hunan Torch agreed to the deal. Executives explained that Weichai Power is a leader in high-power diesel engines, with strong growth potential. The merger will bring together the most valuable and profitable automotive components, creating China’s largest auto parts manufacturer.
Tan Xuguang also addressed concerns about the share price, explaining that the RMB 20.47 issue price was based on recent stock performance and cautious valuations by intermediaries. It represents a 10% discount compared to international bank estimates, which ranged from HK$22.1 to HK$25 per share.
Citic Securities’ Dedi Liren praised the reform as a major innovation in China’s capital market. He emphasized that the merger would resolve shareholder issues and allow Weichai Power to list on the A-share market, strengthening its position as a leading player in the heavy-duty vehicle industry.
This merger marks a significant step in the consolidation of China’s auto parts sector, bringing together two key players to enhance competitiveness and create long-term value for all stakeholders.