(Yicai Global) June 23 -- Changan Mazda Automobile is preparing to increase its equity by 5 percent to bring in another investor, likely paving the way for the merger of Japanese carmaker Mazda Motor’s two joint ventures in China, an industry insider told Yicai Global.

The resulting restructuring will form an entity in which Chongqing Changan Automobile, Mazda and the other JV partner FAW Group each own stakes, the source said. Neither Changan Auto nor Changchun, northeastern Jilin province-based FAW have confirmed the news.

A capital injection is expected to happen between June 16 and August 11, and the new shareholder will hold under 5 percent equity, with the original shareholders owning no less than 95 percent, according to a recent notice on the China Beijing Equity Exchange. The new partner and the exact amount to be invested were not mentioned.

The money raised will be used to improve the quality of business operations and optimize industrial distribution, the notice added. Changan Mazda’s registered capital is likely to rise by USD5.84 million once the transfer is made.

A merger has been on the cards for some time now. The foreign JV partner must undoubtedly tighten its grip as China lifts limits on foreign shareholding rations in JVs and relaxes restrictions on overseas investment, an executive at a FAW Group subsidiary said in April.

Sales of Mazda-branded cars in China have fallen year-on-year since 2017, when they exceeded 300,000 for the first time, according to Mazda China data.

Mazda sold 14,700 vehicles in the country in May, down 13.73 percent from a year earlier. Of this, Changan Mazda shifted 10,360 units and FAW Mazda 4,385. Last year, it shifted 217,000 vehicles, down nearly 30 percent from 2017.

Changan Mazda, in which Hiroshima-based Mazda owns a 50 percent stake, saw profit shrivel 40 percent last year from 2018 to CNY1.5 billion (USD231.5 million) while revenue caved in 13.5 percent to CNY17.3 billion (USD2.7 billion).

Editors: Zhang Yushuo, Kim Taylor