BMW partner in China faces debt problemsAugust 19, 2020
The parent company of BMW’s joint venture partner in China, Brilliance Auto Group Holdings Co., is facing growing scrutiny from investors, who are increasingly concerned about the state company’s ability to manage its debt as the pandemic affects profits.
Brilliance Auto is the parent company of Brilliance China Automotive Holdings Ltd., registered in Hong Kong, which manufactures vehicles jointly with BMW in China through a joint venture. These are the 3 Series, 5 Series and 1 Series models along with the X1 and X3 SUVs in China for BMW. According to the company’s website, it is also building the 60H under its Chinese brand, Zinoro.
Rumor has it that the group will find it difficult to meet its obligations after its banks set up a committee of creditors to coordinate claims on the company’s debt. The group needs to pay 1.37 billion yuan ($ 200 million) in outstanding local bonds this year, according to Bloomberg.
Brilliance Auto, also known as Huachen Automotive Group, on Thursday faced a 35% drop in one of its offshore bonds in interbank trading to a record low amid growing doubts about its solvency. This led to a sharp drop in Brilliance China Automotive’s share price on the same day.
Global and domestic investors are closely monitoring the financial health of key operators in the world’s largest auto market, especially as leveraged companies are grappling with the pressure of the pandemic and declining domestic consumption.
After several high-profile defaults among government-related borrowers, there is also growing interest in the level of government interference such companies face and the implications for international companies associated with them.
Brilliance Auto has already agreed to sell part of its shares in its Hong Kong-based subsidiary to another state-owned entity.
Brilliance Auto’s history dates back to 1949 when the People’s Republic of China was founded. It is one of the largest state-owned companies in the northeastern province, employing 47,000 people.
According to the website, it has four public companies in Hong Kong and Shanghai and about 160 units, wholly or partially owned by it. Brilliance Auto earned 11 billion yuan in net profit in 2019, up 12 percent from a year ago, thanks in large part to the contribution of the joint venture with BMW, according to its latest annual report.
According to a June report from Golden Credit Rating International, Brilliance Auto has low profit margins and is heavily dependent on a joint venture with BMW. In addition, sales of the joint venture are expected to fall this year due to the pandemic, a Chinese rating company said.
Investors are now more focused on Brilliance Auto’s ability to pay off debt over the next two years, with much of its long-term debt hit by falling prices.
Market participants are also watching closely to see if the automaker can keep its word that it will have no trouble paying off its bonds until March, according to local Chinese media.
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