Brilliance Auto on the brink of bond default

Concerns about Brilliance Auto’s financial health have grown since its Hong Kong-listed unit agreed two years ago to relinquish control of its joint venture with BMW by 2022. The China – based joint venture has been a key source of revenue for the group .

Concerns about default began to intensify in August when some banks set up a creditors’ committee to coordinate claims on Brilliance Auto’s debt. According to data compiled by Bloomberg, Brilliance Auto has 17.2 billion yuan in outstanding bonds.

While it hails from the northeastern rust belt province of Liaoning, home to some of China’s ailing state-owned companies, the automaker’s debt problems appear to be isolated in nature.

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 and employs 47,000 people.

According to information on its official website, the company has four listed companies in Hong Kong and Shanghai and about 160 units wholly or partially owned by the company.

In the first half of 2020, Brilliance Auto suffered a loss of 196 million yuan, according to the interim report. In the same period last year, it generated net profit attributable to shareholders of 70 million yuan. Cash flow from operations fell 17 percent to 4.96 billion yuan in the first half, while cash flow from investing activities fell 123 percent to minus 4.6 billion yuan.

The automaker said in an Oct. 23 statement that it was facing tight liquidity and funding pressures, adding that there were “significant uncertainties” about its ability to raise enough funds in a timely manner.

Calls to Brilliance Auto’s Information Disclosure Office went unanswered.

rating agencies

Chinese rating agency Golden Credit Rating International Co. has downgraded Brilliance Auto’s rating twice in the last few weeks. She now rates the company BBB, down from AA+, citing a lack of financing arrangements for debt repayment and a lot of refinancing pressure.

In a report released in June, Golden Credit said Brilliance Auto has low profitability and relies heavily on its joint venture with BMW. Additionally, the joint venture’s sales are expected to fall this year due to pandemic crimp demand, it said.

Investors are focused on Brilliance Auto’s efforts to raise cash to pay off the bond and whether it will be able to put together a debt restructuring plan with key lenders on the creditors’ committee. And all investors are keeping an eye on the Liaoning authorities, which have so far remained silent on their stance on the ailing state-owned company.

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