Shanghai Automotive Industry Corp has signed a letter of intent with Shanghai Electric Group Co Ltd to take over its 50.32 percent stake in a diesel technology company as SAIC revs up efforts towards diesel-powered vehicles.

The preliminary agreement, signed on September 26, will make SAIC or its approved affiliates, the biggest shareholder of Shanghai Diesel Engine Co Ltd, the company said in a statement filed with the Shanghai Stock Exchange yesterday.

SAIC is the nation's biggest car maker with sales of 1.34 million units last year, up 27 percent from 2005. The trading price is still under discussion and the share sale is also pending government approval.

"The move would help SAIC to further streamline its business with stronger support on diesel vehicles," said Zhao Xuegui, chief automotive analyst at Guosen Securities Co Ltd.

"Shanghai Diesel Engine's valuable assets are expected to be injected into SAIC, helping boost its profitability."

Shares of Shanghai Automotive Group Co Ltd, the listed arm of SAIC, increased 2.22 percent, or 0.62 yuan (eight US cents), to close at 28.60 yuan yesterday while trading in Shanghai Diesel Engine remained suspended from its previous 18.17 yuan closing.

Shanghai Diesel Engine is one of China's leading diesel technology suppliers, including diesel engine and diesel powertrains. Sales revenue rose 27.8 percent to 4.9 million yuan in the first half, fueled by surging demand for diesel engines for trucks, buses and pickups.

(Shanghai Daily September 28, 2007)