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BOE completes 12b yuan share placement

By Wang Xing (China Daily)
Updated: 2009-06-12 09:34

BOE LCD televisions displayed at a technology expo in Beijing. [CFP]

Investors usually shun loss making companies but BOE Technology Group seems to be an exception to that rule.

The country's largest LCD panel maker, which has only managed to post an annual profit once in the past four years, has successfully completed a 12-billion-yuan ($1.76 billion) share placement to select investors, the biggest equity fund-raising effort in 17 months.

Nine institutional investors, including Haitong Securities and Southwest Securities, and one individual, Ke Xiping, who is the chairman of Xiamen Hengxing Industrial Co, subscribed to the shares, according to a stock exchange filing from the Beijing-based company.

BOE said the capital raised would be used to expand its liquid-crystal-display (LCD) production capacity, mainly the on-going TFT-LCD production line project in Hefei in central China's Anhui Province, which is set to begin operations by 2010.

BOE Technology is likely to turn into the world's third largest LCD panel provider once the new assembly line becomes fully operational.

According to BOE Technology, the shares were sold at 2.4 yuan each. On Wednesday, BOE's share price surged by 28 percent, creating a huge return on investment for the company's new investors.

Though criticized by many of BOE's small shareholders, many analysts believe the deal is a sign that liquidity is abundant in the stock market.

Related readings:  Taiwan LCD makers seek tie-ups with mainland firms  LG Display expects 50% rise in LCD TVs shipped in China  TCL Corp H1 profit soars on strong LCD TV sales  China imports 9.5% more LCD panels at higher cost

The Shanghai stock market index jumped about 50 percent after the government announced its 4-trillion-yuan economic stimulus plan and on the back of record bank lending.

Some market watchers are worried that some of the new bank lending, which totaled more than 5 trillion yuan in the first five months of this year, will go to the stock and real estate market instead of being channeled into the real economy.

The new investment by BOE Technology, whose major shareholders are state-owned enterprises in Beijing, Hefei and Chengdu, is expected to give a shot in the arm to the local economy.

Besides the Hefei production line, BOE Technology is also planning to establish an LCD production line in Beijing next year, which needs an investment of about 30 billion yuan.

Impacted by the economic slowdown, most of the world's major LCD panel makers recorded huge losses due to weak demand for electronic products.

But BOE Technology hopes that China's robust demand for personal computers and LCD televisions will boost the LCD display market in the country in the coming years.

The current financial crisis may encourage domestic electronics goods makers to reconsider their traditional way of importing expensive LCD displays from overseas providers such as AU Optronics, Chi Mei Optoelectronics, Samsung and Sharp, analysts said.

However, many experts are still cautious about BOE's new investment as supply of LCD panels far outpaced current demand. And, with more overseas LCD panel makers, mainly the Taiwan firms, moving their factories to the Chinese mainland, the LCD market in China is expected to get more crowded.

"The LCD market has rebounded somewhat, but whether the momentum can be sustained still remains to be seen," TX Investment Consulting Co said in a research note.

BOE's share price, which tumbled 9 percent to close at 5.87 yuan in Shenzhen trading, is much higher than its net asset value of 2.18 yuan.

"Therefore, it should be cautious about investing in BOE before the LCD market climbs out of the current recession and moves in an upward trend," TX Investment said.

BOE recorded a net loss of 807.5 million yuan last year due to flat sales amid the financial crisis.

BOE announced in a statement yesterday that the company was likely to post a net loss of between 700 million and 800 million yuan in the first half of this year due to the low prices of LCD panels.

A company spokesman said BOE was likely to make a profit only in the third quarter.

Analysts said it was highly unlikely that the company would make a profit this year.