Monday, September 14, 2009

Buffett Made $1 Billion In Paper Profit From BYD

There are a lot of benefits when you are Warren Buffett, a lot more people want you to invest in their companies. Of course, you have to achieve a lot before you get to where Buffett is. It is true that when you have "made it" the money making will get a lot easier. To be fair to Buffett, he has a lot of bankers showing him deals or alerting him on interesting companies all the time. Plus he has the capital to do things immediately, I remember being shown deals that I thought would be more than decent but would have had to go around trying to convince people with money to invest in them - its a drag. By the time you line up some interest, there will be issues on how to get the commission and then who gets what and among how many people - its really a drag.

Back to BYD, it probably took a lot of foresight and guts to invests in BYD because no matter how good the battery is, there are plenty of competitors out there. The technology could be surpassed in the blink of an eye. Even when you have a great product, you still have the bigger hurdle of latching onto the genuine critical mass buyers, i.e. the Chinese government or any of the major automakers, bearing in mind that most of the carmakers also have been developing their own specialised battery product. Not an investment for the faint hearted.

Battery and electric car producer BYD Co plans to list itself on the Shenzhen Stock Exchange next year with a 100 million share issue to raise funds for its new energy vehicle projects, according to a senior company official.

The Hong Kong-listed company, partly owned by US billionaire Warren Buffet, got the necessary shareholder approval for the public float at the annual general meeting held in Shenzhen on Tuesday.

"We expect to complete the entire listing procedure before Sept 7 next year," Wang Jianjun, deputy general manager of BYD Auto Sales Co Ltd, told China Daily.

The company had last year toyed with the idea of a mainland public float of 58.5 million shares on the Shenzhen or Shanghai bourse. The present plan to raise funds is a revival of that proposal which was put on hold after China suspended IPO approvals for nearly a year due to the global financial crisis.Proceeds from the issue would mainly be used for funding the company's lithium-ion battery production, automobile research and development, expansion of products and parts, as well as a solar battery program, with the rest to be used for working capital needs, said Wang.

"BYD will focus on the development of electric cars in the next few years and would make further efforts to lower costs and improve the performance of BYD electric vehicles, to popularize it among Chinese consumers," he said.

BYD will also start selling its F3DM plug-in hybrid cars to individual consumers from next month.

The hybrid model also figures in the first batch of new-energy vehicles that have got regulatory approval for production and sale from the Ministry of Industry and Information Technology.

"We are applying for the government subsidy for our F3DM, which qualifies for the highest level of as much as 50,000 yuan per unit," said Wang. "The subsidy will help promote the sales of clean vehicles."

BYD's Chairman Wang Chuanfu said earlier this month that billionaire Buffett is contemplating increasing his 10 percent stake in the company. Buffett had acquired the 10 percent stake for $230 million last September.

Since the deal was announced, the automaker jumped fivefold in Hong Kong trading helped by Buffett's investment and rising demand for fuel-efficient vehicles. Buffett's Berkshire Hathaway Inc has also earned a $1 billion paper profit from its investment.

BYD aims to more than double vehicle sales this year to 400,000 units. First-half sales more than doubled to 176,814, helped by demand for the F3, China's fourth bestselling car, according to the China Association of Automobile Manufacturers.

1 comment:

Kingsmen said...

i happen to come across a small article back in nov 08 about warren's venture in this chinese company...what surprises me was the timing of the acquisition (the world mkts then was in the doldrums) was trading around hkd 8 - 12hkd....i finally got in at 13 its a whopping 69hkd !!!!....turkeys do fly during a strong wind!