Car-rental Firm Wants to Use IPO to Expand

   Date:2012-01-20

China Auto Rental Inc, the largest vehicle-leasing agency in the country measured by its fleet size, has filed for an initial public offering on the New York Stock Exchange.

The Beijing-based company, the only business in the industry to offer car rentals in every Chinese province and region, said it plans to raise $300 million to repay debts and buy vehicles.

China Auto Rental's filing did not reveal how many shares it plans to sell nor the expected price of its stock issuance. It said JP Morgan has been chosen to be the lead underwriter in the IPO.

China Auto Rental was founded in 2007 and has expanded quickly in the past two years, driven by a boom in the demand for its services.

The company's annual revenue increased from $8.5 million in 2009 to $22.4 million in 2010. The figure increased to $76.7 million in the first nine months of 2011.

In 2010, it received a 1.2-billion-yuan ($190.1 million) investment from Legend Holdings, the parent company of IBM's PC division owner Lenovo Group, which helped the company pay for its expansion.

The number of vehicles in its fleet increased from 6,000 before the investment to about 26,000 in 2011, almost four times the number owned by its biggest rival.

Lu Zhengyao, company president, said earlier that China Auto Rental aimed to expand its fleet to 100,000 units in 2015.

Meanwhile, the Shanghai-based car rental company eHi Auto Services Co Ltd also received a $70-million investment from a consortium in which Goldman Sachs was the lead investor in 2010. It used the money to further expand its fleet and its presence throughout the country.

And another Chinese car rental company, Qiangsheng Holding Co Ltd, raised money to buy assets from its two largest shareholders - Shanghai Qiangsheng Group Co Ltd and Shanghai Jiushi Corp. Through selling about 245 million shares in a private placement with a capitalization of 1.72 billion yuan, the Shanghai-listed company acquired the investors' taxi operations, car rental, auto service and travel businesses.

"The vehicle rental business in China will see another boom in the coming years because of the increasing demand for cars, improved living standards and new limits placed on the use of private cars," said Cui Dongshu, deputy secretary-general of the China Passenger Car Association.

"But the limitations on car licenses in big cities such as Beijing and Shanghai, which will be followed in more middle-sized cities with similar traffic troubles, will impede their expansion," Cui said.

According to the consulting firm Roland Berger Strategy Consultants, the value of the car-leasing market in China is expected to go from $2.5 billion in 2010 to $6.1 billion in 2015, as urbanization in the country continues to proceed rapidly and the economy keeps growing. Statistics from the company showed that since 2005, the value of China's car-rental market has grown by about 30 percent every year.

As Chinese vehicle-leasing companies expand aggressively to obtain a larger market share, Shen Jun, who leads the Automotive Competence Center of Roland Berger Greater China, said national rules are urgently needed to regulate the industry in a way that ensures it has a sound development.

2005-2011 www.researchinchina.com All Rights Reserved 京ICP备05069564号-1