BEIJING/HONG KONG -- BMW said Tuesday there was no indication that its deal to increase its stake in its China joint venture with Brilliance would be affected by debt issues at Brilliance's parent.
BMW said in 2018 that it would pay 3.6 billion euros ($4.2 billion) in 2022 for a further 25 percent stake in the venture with Brilliance.
"For the BMW Group, there is no indication that the validity of these contracts would be limited by the current situation," a BMW representative told Reuters on Tuesday.
"The BMW Group and the operating business of the joint venture BMW Brilliance Automotive Ltd. (BBA) are not directly affected by the payment difficulties of the Chinese Brilliance Group."
Huachen said Monday that its creditors had applied to restructure the company.
Since September Brilliance has held conference calls with investors to provide assurances that Huachen's debt problems were unlikely to impact the execution of the deal, three people who joined different calls said.
A fourth person close to the government in Liaoning province, where the joint venture is based, told Reuters that the authorities are keen to let BMW increase its stake in the JV and expand manufacturing capacity there as planned.
Brilliance and Huachen did not immediately respond to requests for comment.
Haitong International analyst Shi Ji said that according to the contract terms, 50 percent of BBA is not directly held by Brilliance, but through two layers of entities that are 100 percent owned by Brilliance and its subsidiary.
Therefore, even if Huachen Group goes bankrupt or transfers its stakes, BBA's operation is legally protected, he said.
China has seen a smattering of high-profile Chinese debt defaults in recent days, spooking traders and sparking a bond market selloff.
The latest clutch of defaults, which Goldman Sachs noted are bigger and include more state-owned enterprises than last year, highlight that investors need to pay close attention to avoid being caught in the credit cleanup.
Bondholders see a bankruptcy restructuring by Huachen to be unfavorable as they will likely end up getting little out of the process.
Sources told Reuters in September that Chinese state-backed investors are considering taking Brilliance private, although that is not expected to affect BMW's plan to lift its stake.
