Shares of BYD, the Chinese electric carmaker backed by Warren Buffett, the billionaire U.S. investor, rose by as much as 46 per cent in their Chinese debut, in spite of weak market sentiment and months of bad trading news from the company.
The carmaker, which is widely viewed as one of the most likely beneficiaries of Beijing's policy of promoting alternative fuel vehicles in China, raised $219-million (U.S.) in its IPO.
BYD shares were traded at 22 (Renminbi) a share at the open in Shenzhen and rose to more than 26, compared with an initial public offering price of 18. The shares closed 41 per cent higher at 25.45.
The company's strong debut bucks a recent trend in the mainland markets, which recently logged their first cancellation of an initial public offering because of a lack of investor interest. Nanning Baling Technology, an auto industry supplier, scrapped its IPO in June, the first such cancellation in the China markets' 20-year history.
BYD's decision to list in the country came in spite of the weakness of the Chinese auto market over the past several months and was taken by analysts as a sign that the company was desperate for cash to fund further development.
The company's latest quarterly results showed an 84 per cent drop in net profit, which analysts said reflected not only weak auto sales but weakness in sales of its battery business. Also, Credit Suisse on Thursday lowered its earnings forecasts for BYD over the next three years.
Zhang Xin, auto analyst at Beijing-based Guotai Junan Securities, said the first-day surge reflected the mystique of Mr. Buffett's involvement in the stock, and Chinese investors' enthusiasm for alternative energy stocks. "I think it is not sustainable and the stock is likely to fall tomorrow," he said.
Wang Chuanfu, BYD chairman, told investors in June that he expected to start mass production of electric vehicles this year: "Over the next few years, the company will launch a series of electric buses and passenger cars," he said. But BYD has repeatedly failed to meet previous forecasts relating to electric car production and exports.
"While I think that in the long-term BYD has the potential to play an important role in the electric vehicle business, at this point they have not yet convinced the market about their success strategy, which probably means this surge will be short-term," said Klaus Paur, auto analyst at Synovate in Shanghai.
BYD shares in Hong Kong, where the company is also listed, have fallen 57 per cent in the past year, compared with an 11 per cent rise for the Hang Seng index.
Additional reporting by Shirley Chen