“Jianghuai does not want to become a foundry and the joint venture must bring in new technologies.†On October 9, Secretary of the board of directors of Jianghuai Automobile Wang Min expressed to the reporter of “Daily Economic Newsâ€.
September 28 JAC announced that the company had signed a framework agreement with Navistar and Caterpillar in the United States to establish a joint venture automobile company in Hefei to produce medium and heavy trucks and components.
According to the joint venture agreement, Caterpillar United Navistar will hold 50% of the shares and the remaining 50% will be held by JAC. The reporter was informed that due to the foreign ownership of 50% of the shares, the joint venture of Jianghuai Automobile once caused controversy.
50% shareholding structure is unfavorable to the Chinese side
"Daily Economic News" reporter was informed that Jianghuai Automobile's existing heavy-card assets such as existing production bases, technical laboratories, sales channels and other shares, while Caterpillar, Navistar will share in the form of cash plus technology property rights.
Based on the above principles, Jianghuai Automobile did not obtain an absolute controlling stake of 51%, but only obtained 50% of the largest shareholder status.
It is understood that the best domestic heavy truck companies have not adopted the 50%:50% form when they cooperate with foreign investors. For example, in July of this year, China National Heavy Duty Truck Co., Ltd. cooperated with German company Man to transfer only 25% of the minority equity, and obtained foreign capital of 6.3 billion yuan in funds and core technologies.
For this case, the Secretary of the board of directors of Jianghuai Automobile, Wang Min, stated that “China National Heavy Duty Truck is transferring 25% equity of the listed company, while Jianghuai Automobile only transfers a small portion of assets of heavy assets of the listed company. In this respect, the two companies The joint venture project is not comparable."
According to reports, the Jianghuai Automobile heavy truck joint venture project has uniqueness in the equity structure. According to the announcement, Jianghuai Auto has signed a joint venture agreement with NC2, but NC2 has 50% stake in Caterpillar and Navistar. As a result, it became a joint venture of three companies.
The research report of Zhongyuan Securities pointed out that the heavy truck business of Jianghuai Automobile does not have scale advantages. Due to lack of competitive advantages, the Jianghuai Automobile Board of Directors decided to “retreat from advancement†and split the heavy truck business into a joint venture.
“But take a 50% 50% stake in the joint venture. This is a practice of diluting profits. It can be adopted when developing overseas markets. As a domestic company familiar with the market environment, such a joint venture initiative will leave many complications.†Securities analysts noted above.
It is understood that the equity structure of the above-mentioned joint venture project of Jianghuai Automobile is unfavorable to the Chinese side. Since NC2 is a joint venture between Caterpillar and Navistar, if it involves reintroducing strategic investment in the next few years, Jianghuai’s equity will be further diluted. If foreign investors merge equity, Chinese companies are likely to face the potential risk of losing their largest shareholder.
How to achieve technology transfer?
JAC's marriage with foreign capital is the most concerned with technical cooperation in the industry. Then whether foreign companies will transfer the core technology of heavy trucks to JAC?
"Daily Economic News" reporter reviewed the announcement and found that no mention was made of technology transfer. In response, Wang Min, secretary of the board of directors of Jianghuai Automobile, explained that "the purpose of the joint venture is to obtain advanced technology and related technology negotiations have been conducted. It has not yet been publicly announced."
Industry sources pointed out that Jianghuai Automobile did not materialize technology transfer in the form of contract terms, leaving another key hidden danger for the future. "Technology transfer of joint venture projects is the most pressing problem. It must be regulated in the form of contractual terms. Otherwise, this will become a bargaining chip for foreign investors," said Li Ming, managing director of the Beijing Representative Office of New York International Capital Group.
According to relevant sources, carefully analyzing JAC's heavy-duty truck joint venture projects, it is not difficult to find that the real technology transfer will take place in the newly-developed brand, because the newly-developed heavy truck will sell overseas markets. "Once new products are sold in large quantities in overseas markets, then JAC will undoubtedly become a foundry that is under a joint venture. Its plan to introduce core technology will be difficult to achieve." Another international investment banker pointed out.
"Obviously, in signing the agreement, China National Heavy Duty Truck's approach is worth drawing from Jianghuai Automobile. Now that negotiations are still underway, JAC can refer to CNHTC to put forward more additional agreements to ensure the acquisition of core technologies." The above analysis of Zhongyuan Securities The person pointed out.
Or encountered obstacles to approval
As it involves the introduction of foreign investment, Jianghuai Automobile must apply for policy approval from the Ministry of Commerce, the National Development and Reform Commission and other competent authorities.
"With regard to the approval, we have not formally submitted an application. Once the negotiation is over, we will proceed immediately." The Jianghuai Automobile said.
Industry sources pointed out that there are many hidden dangers in this joint venture project. On the one hand, according to the current M&A policy, 50% of foreign-invested joint venture projects will encounter greater resistance in approval. On the other hand, the state hopes that foreign investors will transfer technology and will not encourage OEM production. If there are signs of OEM production, the relevant national authorities will consider it carefully.
According to the reporter of “Daily Economic Newsâ€, as a local heavy truck company in China, it is not desirable for Jianghuai Automobile to attract foreign capital by transferring 50% of its equity. "It is not enough, but it can also be used in joint ventures with foreign powertrain companies such as Cummins and other engine companies to create a synergistic effect in the upstream and downstream industry chains." The overseas investment bankers told the Daily Economic News reporter.
Once a joint venture method of transferring 50% of the equity is adopted, the future game will be inevitable. The Chinese may not be able to obtain the right to speak as they wish. All the above questions will bring resistance to the joint venture of Jianghuai Automobile.
View related topics: Joint venture hot car
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