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Caixin

Baoneng auto unit defaults on $434m trust loan

Debt woes mount for Yao Zhenhua's new-energy vehicle company

The Qoros Auto display at the Shanghai International Popular Science Products Expo in 2018. Baoneng's auto unit acquired a 51% stake in Qoros in 2017.   © AP

Shenzhen-based Baoneng Investment Group missed repayments on yet another debt to finance its unrealized automaking dream, underscoring the deepening capital crunch of the once-highflying private conglomerate.

Baoneng Motors Group, the auto unit of Baoneng, failed to pay interest on a 2.8 billion yuan ($434 million) trust loan to finance a new-energy vehicle (NEV) industrial park project in Guangzhou, state-backed China Railway Trust disclosed. Baoneng and its controlling shareholder, Yao Zhenhua, offered guarantees for the product.

The loan was issued in May 2020 with a maturity period of 15 months. It raised funds to develop Baoneng's NEV project, which started in 2017 but has made little progress.

Baoneng, a private property and financial services company, is the latest Chinese conglomerate to face a massive debt crisis. The company is best known for its failed 2015 hostile takeover attempt of major property developer China Vanke.

Baoneng's capital crunch was revealed around the beginning of the year. With 200 billion yuan of debt, Baoneng faces employees demanding unpaid wages, suppliers clamoring for overdue payments, and creditors seeking loan payments.

China Railway said a court in Chengdu ordered a freeze on some of Baoneng's assets -- including land use rights, properties, equities and guarantors' accounts -- to recoup losses from the loan default.

Last month, Shandong International Trust said Baoneng Motors failed to pay 67.5 million yuan of debt interest. Chongqing International Trust declared a Baoneng-related default on 2.2 billion yuan, and Shanghai AJ Trust on 518 million yuan.

Other trust firms also face risks on loans to Baoneng Motors, including Sino-Australian International Trust, Zhongrong International Trust, Cofco Trust and AVIC Trust.

Yao, Baoneng's 51-year-old founder and chairman, started Baoneng Motors in 2017 with registered capital of 1 billion yuan. The same year, the auto unit acquired a 51% stake in Qoros Auto, a small Shanghai-based automaker, for 6.5 billion yuan. A year later, Baoneng spent an additional 1.56 billion yuan to increase its stake in Qoros to 63%.

In 2019, Baoneng took over French automaker PSA's joint venture with Changan Automobile. Changan disclosed that it sold its 50% stake in the joint venture to Baoneng for 1.63 billion yuan. PSA did not disclose the value of its deal with Baoneng. Yao vowed to invest 10 billion yuan annually in the five years starting in 2018 to develop new vehicles and launch 26 models by 2022.

Between 2017 and 2020, Baoneng Motors spent 869 million yuan to acquire 1 million sq. meters of land in Guangzhou for the NEV industrial park project. But the land plot has largely remained idle and Baoneng Motors hasn't produced a single car so far. The Guangzhou industrial park obtained billions of yuan of financing through the issuance of trust products.

In June, Baoneng said the Guangzhou government agreed to provide 12 billion yuan of strategic investment to Baoneng Motors as a rescue. Caixin learned that only 2.4 billion yuan of the investment fund arrived at Baoneng by early September.

Since September 2021, courts across China have issued 12 execution orders against Baoneng for debt disputes involving more than 17.6 billion yuan, public records showed. The company's capital crunch also sparked fears in the bond market.

Shenzhen Jushenghua, Baoneng's core subsidiary and major financing platform, has 14 outstanding bonds totaling 11.7 billion yuan. Shenzhen Shum Yip Logistics Group Holdings, another Baoneng financing arm, holds five outstanding bonds of 9 billion yuan, market data showed.

According to Dagong Global Credit Rating, Jushenghua defaulted on a 1.59 billion yuan bond on Sept. 30, with the next 410 million yuan bond due Oct. 22.

Starting in the second half of 2020, Baoneng tried to repay debt by selling assets but has few that can generate cash quickly.

"All its land and office buildings have been used for collateral on loans, and the interest rates are not low," said one person familiar with the matter. The only liquid assets are Baoneng's holdings of listed companies' shares.

Since the second half of 2020, Qian Hai Life Insurance, another core subsidiary of Baoneng, has offloaded more than 370 million publicly traded shares.

Denise Jia contributed to this story.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei has an agreement with the company to exchange articles in English.

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