GUANGZHOU Shipyard International Co said it plans a rights issue of up to 3.1 billion yuan (US$452 million) to find the purchase of an affiliate shipyard from its parent as it bids to widen its product offering as part of a reorganization.

The purchase of Guangzhou Wenchong Shipbuilding Ltd, based in the same city in Guangdong Province, would help Guangzhou Shipyard expand into building smaller vessels.

Guangzhou Shipyard said yesterday that it will offer owners of its Shanghai-traded A shares and Hong Kong-listed H shares the rights to buy three shares for every 10 held. It did not give a price but said there will be a discount to the 20-day average share price before the announcement. Holders of A and H shares will be subject to the same subscription price, which should be not less than 4.96 yuan per share, it said.

The Wenchong yard was put up for sale on the Beijing Equity Exchange for 3.04 billion yuan by China State Shipbuilding Corp, the parent and China's largest ship builder.

Guangzhou Shipyard will allot as many as 101 million A shares and 47.2 million H shares in the proposed rights offer, and will sign a deal with CSSC around August 5 if there are no other contenders.

Wenchong made a net profit of 626 million yuan on sales of 3.19 billion yuan in 2007, compared to Guangzhou's earnings of 939 million yuan and sales of 5.9 billion yuan. Wenchong builds small and medium vessels including cargo ships, dredging vessels, oil tankers and multipurpose vessels.

"Wenchong has better profitability than Guangzhou," Ye Zhigang, a Haitong Securities analyst, said. "The deal would give Guangzhou a wider product offering as their businesses don't overlap."

Guangzhou Shipyard fell 6.81 percent to 23.54 yuan yesterday in Shanghai on concern that profit would be diluted on a per-share basis after the stock issue.