May 25, 2023
Shenyang Weighing Takeover of Brilliance China’s Major Owner, Sources Say
(Bloomberg) -- The northeastern Chinese city of Shenyang is drawing up plans to take over the biggest shareholder of Hong Kong-listed Brilliance China Automotive Holdings Ltd. for about 16 billion yuan ($2.3 billion), according to people familiar with the matter, as the municipal government seeks to rescue the state-backed defaulter.
Shenyang is in talks to secure financing for acquiring Brilliance Automotive Group Holdings Co., which is undergoing a court-led restructuring process, one of the people said. Brilliance Auto’s creditor committee may vote on the government’s proposal as soon as next week, the people said, asking not to be identified as the information is private.
A takeover, if successful, will turn Shenyang’s government into the effective holder of a 30% stake in Hong Kong-listed Brilliance China, which is worth about $622 million based on the company’s current market value. That will also give the city exposure to a joint venture with BMW AG. Unsecured creditors would receive 20% of their principal in cash over multiple installments, according to the people.
Shares of Brilliance China erased losses and jumped as much as 4.5% after the Bloomberg News report, closing nearly 1% higher on Friday.
Deliberations are ongoing and Shenyang’s government could still decide against a deal, the people said. It’s unclear whether the creditors will accept the proposal and there are other potential suitors, they added. Representatives for Brilliance Auto Group, Brilliance China and Shenyang’s government didn’t immediately respond to requests for comment.
The city’s latest plan comes as China is poised to become the world’s No. 2 exporter of passenger vehicles, even as a price war has broken out among the country’s fast-growing electric vehicle makers, pressuring margins. For Brilliance Auto Group, also sometimes referred to as Huachen Automotive Group Holdings Co., the proposal will end a restructuring process that began in 2020 after it defaulted on debt.
The administrator overseeing the court-led restructuring solicited strategic investors that may bid for all or part of Brilliance Auto Group’s assets, including the Brilliance China stake. Shenyang had considered directly buying the Brilliance China stake that could have also provided funds for the defaulted automaker to repay the creditors, Bloomberg News reported in April. The government has set up a new entity called Shenyang Automobile Co. for a potential deal, people familiar with the matter said at the time.
Brilliance China holds a 25% stake in BMW Brilliance Automotive Ltd., after the German automaker boosted its stake to 75% from 50% late last year for about €3.6 billion ($3.9 billion). The deal saw BMW record in 2022 a one-time gain of €7.7 billion from the re-measurement of its equity interest in the venture.
The BMW Brilliance joint venture, which was founded in May 2003, last week unveiled plans to invest 10 billion yuan in an assembly plant making sixth-generation high-voltage batteries for its electric vehicles. The German carmaker said it will begin production of Neue Klasse models in Shenyang from 2026.
--With assistance from Linda Lew.
(Updates with shares in fourth paragraph.)
©2023 Bloomberg L.P.