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Automobiles

BMW's Chinese partner enters bankruptcy restructuring

Joint venture with German automaker unaffected but own brands face uncertainty

Huachen is the parent of Brilliance China Automotive, the joint venture partner of BMW in China. (Photo courtesy of BMW Brilliance Automotive)

HONG KONG/GUANGZHOU -- BMW's partner in China, Huachen Automotive Group Holdings, entered bankruptcy restructuring on Friday.

The Shenyang Municipal Intermediate People's Court in northeast China's Liaoning Province, where the company is based, accepted the restructuring application filed by a creditor, according to court records.

Huachen, owned by the Liaoning provincial government, is the parent of Brilliance China Automotive, joint venture partner of BMW. The two companies' BMW Brilliance Automotive operates two vehicle plants, a research and development center and an engine factory in Shenyang, together forming the German carmaker's largest global production base.

A Huachen official cited in local media reports said Friday that the restructuring involves only the operations of the group's proprietary brands and not its listed subsidiaries or its joint ventures with BMW and Renault.

The China Securities Regulatory Commission announced it is investigating Huachen and financial institutions who handled a series of bond offerings by the group. The watchdog vowed to "firmly defend the bottom line so as not to bring about prevent systemic risk" while the Shanghai Stock Exchange issued a warning letter to China Merchants Securities, which was the main bookrunner for one of the bonds.

Hong Kong-listed Brilliance China said in a statement Friday night that its operation "continues as usual" and that it will "continue to closely monitor the development."

Huachen shuffled its shareholdings in Brilliance China recently, passing 11.9% of the unit's outstanding shares to Liaoning Provincial Transportation Investment Group in two transactions in May and July and its remaining 30.4% stake to Liaoning Xinrui Automotive Industry Development, a fully owned subsidiary of Huachen, in September.

Toliver Ma, auto sector analyst at Guotai Junan Securities, wrote in a client note on Friday that "the restructuring will help clear the uncertainty surrounding the future of the joint venture with BMW."

He gave a rating of "accumulate" to Brilliance China, with a target price of HK$9, 20% above its Friday close of HK$7.48.

In an update earlier this month, BMW said, "China saw a continuation of the recovery that had already begun during the second quarter, enabling the BMW Group to increase sales in its largest market to a record level." For the first nine months of 2020, BMW sold 560,367 vehicles in China, up 6.4% from a year earlier.

The fate of Huachen units producing the company's own brands is unclear, however.

Shanghai-listed Shenyang Jinbei Automotive said late Friday that "uncertainty exists" with regard to the restructuring of its parent. It revealed that it had guaranteed 530 million yuan ($80.64 million) of Huachen's loans and is owed another 50.07 million yuan from its parent.

Shanghai Shenhua Holdings, a Shanghai-listed sales unit, said that it is owed 140 million yuan and has guaranteed 445.65 million yuan of Huachen's loans. It noted that part of Huachen's ownership stake was frozen after a loan default.

Huachen, which used to be listed on the New York Stock Exchange, disclosed on Nov. 14 that it had defaulted on 6.5 billion yuan on debt obligations. The total included a 1 billion yuan bond it failed to repay on Oct. 23, sending shock waves through the market.

In its order Friday, the Shenyang court said Huachen could be revived through a restructuring and that this would be worthwhile. According to the court filing, Huachen's total unconsolidated liabilities reached 52.3 billion yuan against total assets of 45.9 billion yuan as of the end of June.

It sold about 720,000 cars overall last year, making it China's ninth-largest automaker. With its own brands struggling, it received capital support from the Liaoning government in 2018.

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