Caixin
Nov 20, 2020 08:34 PM
BUSINESS & TECH

Brilliance Auto’s Debt Problems Drive It Into Restructuring

The company acknowledged Monday that it had defaulted on debts totaling 6.5 billion yuan, along with 144 million yuan of interest.
The company acknowledged Monday that it had defaulted on debts totaling 6.5 billion yuan, along with 144 million yuan of interest.

Cash-challenged Brilliance Auto Group Holdings Co. Ltd., parent of BMW AG’s main Chinese joint-venture partner, officially entered restructuring Friday after a local court accepted a creditor’s request.

A court in the northeastern city of Shenyang on Friday accepted the restructuring request filed by GZ Tooling Group Automobile Technology Co. Ltd. under China’s bankruptcy law, as Brilliance Auto had failed to repay money it owed the company, according to a court document (link in Chinese).

The court determined that Brilliance Auto did not have sufficient assets to repay all its debts and therefore met the threshold for bankruptcy restructuring, according to the document. However, the court did mention that the company still “has value and there is a possibility of it being saved” so it’s necessary for it to undergo restructuring.

The court’s decision came about one month after Brilliance Auto failed to repay 1 billion yuan ($152 million) in principal and 53 million yuan in interest on a bond due Oct. 23. The company acknowledged Monday that it had defaulted (link in Chinese) on debt totaling 6.5 billion yuan, along with 144 million yuan of interest.

Brilliance Auto’s 2020 midyear report (link in Chinese) showed that at the end of June it had about 132.8 billion yuan in total liabilities and more than 60 billion yuan in interest-bearing debt.

Under bankruptcy law, the court will appoint a manager to take charge of Brilliance Auto’s restructuring. The manager’s duties include collecting debt reports from creditors and drafting a restructuring plan for creditors to vote on.

Brilliance Auto controls a 23% stake in Shanghai Shenhua Holdings Co. Ltd. and a 37% stake in Shenyang Jinbei Automotive Co. Ltd. The two Shanghai-listed companies said Friday in separate exchange filings (link in Chinese) that there were uncertainties about whether the restructuring would affect their shareholding structures.

Brilliance Auto is perhaps best known for its collaboration with BMW. In 2003, its Hong Kong-listed subsidiary Brilliance China Automotive Holdings Ltd. established a joint venture with the German luxury automaker to make passenger cars under the BMW brand in Shenyang, capital of Brilliance Auto’s home province of Liaoning.

That joint venture, BMW Brilliance Automotive Ltd., has held on to about a quarter of China’s luxury passenger car market over the last three years, and contributed over 90% of Brilliance Auto’s revenue and net profit last year, according to the companies’ financial data. But in October 2018, the partners agreed BMW would increase its stake in the venture from 50% to 75% in 2022, when China’s current foreign ownership limits for the auto industry expire.

Currently, one of investors’ biggest concerns involves the lucrative joint venture. In September, about one month before its bond default, Brilliance Auto entered an agreement to transfer all of its shares in Brilliance China to a wholly owned subsidiary, which some investors say means it was transferring valuable assets to avoid debt repayment.

Earlier this month, one of Brilliance Auto’s creditors — the Shanghai branch of DBS Bank (China) Ltd., a subsidiary of Singapore’s DBS Bank Ltd. — filed an arbitration against it. The bank said that the carmaker disposed of significant assets without creditor approval, undermining the interests of all creditors.

As a result of market concerns over Brilliance Auto’s bond default, China’s top securities regulator on Friday issued it a warning letter (link in Chinese) and decided to investigate the company for possible information disclosure violations. Intermediaries involved with its bond issuance will also be inspected, the regulator said.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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