Concerns have grown about the financial health of Brilliance Auto since its Hong Kong-listed unit agreed two years ago to give up control over its joint venture with BMW by 2022. The China-based joint venture has been a crucial source of earnings for the group.
Worries about a default started intensifying in August when some banks set up a creditor committee to coordinate claims on Brilliance Auto’s debt. Brilliance Auto has 17.2 billion yuan in outstanding bonds, according to data compiled by Bloomberg.
While it hails from the rust belt northeastern province of Liaoning that is home to some of China’s ailing state-run companies, the automaker’s debt woes appear 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, employing 47,000 people.
It has four publicly-listed companies in Hong Kong and Shanghai, and about 160 units either wholly or partially owned, according to information on its official website.
In the first half of 2020, Brilliance Auto suffered a loss of 196 million yuan, according to its interim financial report. It generated 70 million yuan in net profit attributable to shareholders in the same period a year ago. Cash from operations fell 17 percent to 4.96 billion yuan in the first half, while that from investing activities dropped by 123 percent to a negative 4.6 billion yuan.
The automaker said in a statement dated Oct. 23 that it is faced with tight liquidity and funding pressure, adding there are “significant uncertainties” over its ability to raise sufficient funds in time.
Calls to Brilliance Auto’s information disclosure office went unanswered.
Chinese credit rating firm Golden Credit Rating International Co. has twice cut Brilliance Auto’s rating in recent weeks. It now rates the firm BBB, down from AA+, citing a lack of debt repayment funding arrangements and large 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. In addition, sales from the joint venture are expected to fall this year with the pandemic crimping demand, it said.
Investors are focused on Brilliance Auto’s effort to raise cash for its bond repayment and whether it will be able to produce a debt restructuring plan with major lenders on the creditor committee. And all investors are keeping an eye on Liaoning authorities, who have so far remained quiet on their stance over the troubled state firm.