Shanghai Stock Exchange Penalizes Brilliance Auto for Bond Violations

What’s new: The Shanghai Stock Exchange Tuesday issued a disciplinary penalty to Brilliance Auto Group Holdings Co. Ltd., parent of BMW AG’s main Chinese joint-venture partner, condemning the company, its chairman and the executive in charge of information disclosure.

Without disclosing the nature of the penalties, the exchange said the company violated the exchange’s bond listing rules, bond transfer rules and credit risk management guidelines. It also violated a public commitment made in its bond offering prospectus and harmed the interests of bondholders.

The penalty is related to Brilliance Auto’s stake transfer between subsidiaries. In June and September, Brilliance Auto transferred some equity in its core subsidiaries into two newly established units, but it failed to fully disclose part of the transfer.

Two weeks after Brilliance Auto failed to repay 1 billion yuan ($154 million) of principal and 53 million yuan of interest on a bond due Oct. 23, one of the new units pledged all the equity it received from Brilliance Auto as collateral for loans. The deal raised the question whether Brilliance might have transferred valuable assets to escape debt.

The background: Brilliance Auto entered restructuring in November after it failed to repay money it owed creditors. A court in the northeastern city of Shenyang that accepted the restructuring request filed by one of its creditors determined that the company did not have sufficient assets to repay all its debts.

As a result of market concerns over Brilliance Auto’s bond default, China’s top securities regulator in November 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.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

Related: Brilliance Auto’s Debt Problems Drive It Into Restructuring

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