Concerns over BMW’s Chinese partner increasing debts

China
Published:  21 August, 2020

Brilliance Auto Group Holdings, the parent company of BMW's joint venture partner in China, is reportedly facing worsening investor anxiety, as BMW has concerns about the state-owned company's capacity to erase its debt load as the Covid-19 pandemic weighs on profits.

Brilliance Auto is the parent of Hong Kong-listed Huachen Automotive Group Holding. It manufactures vehicles with BMW in China via a 15-year-old joint venture, including the 3 Series, 5 Series, and 1 Series alongside the X1 and X3 SUVs in China for BMW. It also builds the 60H from its China-only brand Zinoro.

The Chinese company is expected to struggle to service its liabilities after its banks set up a creditor committee to coordinate claims on its debt. Questions have arisen around Brillance Auto’s liquidity and ability to pay down debts of CNY43.3 billion (US$5.2 billion) by the year end. On August 20, onshore bonds for Brillance Auto are reported to have dropped 35% in interbank market trading, a record low as doubts about its repayment ability rise. This also sent Brilliance China Automotive's stock price decreasing sharply on the same day.

Like other foreign carmakers, BMW faces the risk of persistent uncertainty, especially the Chinese state’s unpredictable role and potential sudden change of plans.

Sources: Bloomberg/AutoNews

Brilliance Auto is the parent of Hong Kong-listed Huachen Automotive Group Holding. It manufactures vehicles with BMW in China via a 15-year-old joint venture, including the 3 Series, 5 Series, and 1 Series alongside the X1 and X3 SUVs in China for BMW. It also builds the 60H from its China-only brand Zinoro.

The Chinese company is expected to struggle to service its liabilities after its banks set up a creditor committee to coordinate claims on its debt. Questions have arisen around Brillance Auto’s liquidity and ability to pay down debts of CNY43.3 billion (US$5.2 billion) by the year end. On August 20, onshore bonds for Brillance Auto are reported to have dropped 35% in interbank market trading, a record low as doubts about its repayment ability rise. This also sent Brilliance China Automotive's stock price decreasing sharply on the same day.

Like other foreign carmakers, BMW faces the risk of persistent uncertainty, especially the Chinese state’s unpredictable role and potential sudden change of plans.

Sources: Bloomberg/AutoNews