Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Brilliance China Automotive Holdings Limited    1114   BMG1368B1028

BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED

(1114)
  Report
SummaryChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector newsMarketScreener StrategiesAnalyst Recommendations

Analysis - China's bond defaults show Beijing's war on debt is back

11/24/2020 | 04:24am EST

SHANGHAI/SINGAPORE (Reuters) - A spurt of missed debt repayments by three Chinese state-owned firms - a coal miner, a chipmaker and an automobile company - has shaken local markets and heightened speculation that a campaign to wean the economy off heavy credit is back.

The defaults have angered investors, who say their faith in the firms' top-notch ratings, seemingly sound finances and implicit state backing has been violated.

While the notable lack of state support for struggling state-owned enterprises (SOEs) suggests Beijing now has more confidence in the economy's ability to absorb such failures, it has caught many bondholders off guard.

A default late last month by Huachen Automotive Group Holdings Co, the parent of German automaker BMW's Chinese joint venture partner, exemplified opaque risks, underdeveloped pricing mechanisms and investor naivety in China's corporate bond market.

"If the company had told investors it was in great trouble, I wouldn't have bought and held the bonds," said Shanghai-based hedge fund manager Vincent Jin, who bought Huachen bonds early this year.

Huachen boasted a AAA issuer rating when it launched its 1 billion yuan ($151.93 million) three-year, privately placed bond in October 2017. It comes from one of China's poorer provinces, Liaoning, but as recently as April told bondholders it had adequate cash, lots of land and state backing.

Creditors were therefore stunned when Huachen not only defaulted but was also dragged to court by a creditor for bankruptcy restructuring.

Moreover, one month before its bond delinquency, Huachen transferred its prize 30% stake in Hong Kong-listed Brilliance China Automotive Holdings Ltd to a subsidiary, leaving bondholders with no access to those assets.

Jin missed the warning signs in Huachen's books. At the end of 2019, the company had 144.8 billion yuan in liabilities - mostly short-term - three times shareholders' interest. With the exception of BMW, all of Huachen's auto brands were bleeding cash.

As rumours swirled of Huachen's problems, Jin didn't cut his losses, assuming the government wouldn't let a heavyweight SOE fail.

BACK TO NORMAL

For some, such defaults suggest credit markets are merely picking up where they left off last year, before COVID-19 paralysed the economy and as the Communist Party waged a war on indebtedness and unproductive investment.

"It's really more of the messaging than anything else, and unless there's some threat to the financial or economic stability of China then the central government is happy to let the state firms go under," said Andrew Collier, managing director, Orient Capital Research. "Clearly the central government does not want to step in and is now basically telling local governments that they're on their own."

For investors, that leaves big questions about SOEs' changing risk profile and their relationship with the state.

In the central province of Henan, Yongcheng Coal & Electricity Holding Group Co, a AAA-rated state-owned mine operator, defaulted on Nov. 10, only three weeks after issuing fresh debt and a week after moving its stake in Zhongyuan Bank to two government subsidiaries.

SOE defaults are not new, but blocking bondholders from liquid assets is, said Rocky Fan, economist at Sealand Securities.

"It's like telling investors: I don't want to pay back your money," Fan said.

"If that's the case, there's no way you can assess a company's risk, or price a bond, based on its fundamentals."

Yongcheng's 270-day commercial paper bore a 4.39% coupon, well above the 1.84% risk-free rate on government debt at the time of issue, but "still low considering the risks", said a director at a local securities firm.

In a separate instance, Tsinghua Unigroup, a chipmaker backed by Beijing's prestigious Tsinghua University, defaulted on a three-year, 1.3 billion yuan bond on Nov. 15, shortly after a rating agency warned of debt risks at the company.

The defaults sent other bonds issued by Yongcheng, Huachen and Tsinghua Unigroup to about a tenth of their face value.

"For too long (risk) has been mispriced. This is what misallocation of capital looks like," said Fraser Howie, an independent analyst and co-author of the book "Red Capitalism".

"You've been pouring money into companies that simply don't deserve it."

QUICKSAND

More than 90% of Chinese rated issuers have stamps of AA or higher. That absence of differentiation has complicated efforts to price risk.

"Most sophisticated investors understand that there is a major difference between lending to a state-owned enterprise, and lending to the state," said Michel Lowy, founder and chief executive officer of SC Lowy, a global banking and asset management group focused on distressed and high-yield debt.

"(This) is a quick reminder of the difference, and of the fact that China does not have the intention to bail out every state-owned enterprise that has made wrong choices."

Huachen's bondholders say the automaker's sudden default could have been complicated by local politics.

Two months before Huachen's default, Liu Ning, former governor of Qinghai province, was appointed Liaoning's governor, while Zhang Guoqing, former mayor of Tianjin, became provincial Party Secretary. Both leaders implemented significant restructuring in their previous jurisdictions, which were both deeply indebted.

It's treacherous terrain and one that most foreign investors, even those that thrive on risk, avoid.

"For us, as fundamental investors, it's not a market to play," said Tiansi Wang, a senior credit analyst at Robeco in Hong Kong. She said the defaults are nevertheless a good sign.

"It's not healthy if nobody ever takes the pain - then you don't have a proper risk pricing environment."

($1 = 6.5818 Chinese yuan)

(Reporting by Andrew Galbraith and Samuel Shen in Shanghai and Tom Westbrook in Singapore; additional reporting by Rong Ma in Beijing; Editing by Vidya Ranganathan and Sam Holmes)

By Samuel Shen, Andrew Galbraith and Tom Westbrook


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED -2.40% 6.51 End-of-day quote.-7.79%
CHINA AUTOMOTIVE SYSTEMS, INC. -4.00% 6.96 Delayed Quote.11.54%
SEALAND SECURITIES CO., LTD. 0.18% 5.45 End-of-day quote.-7.00%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.13% 6.48886 Delayed Quote.-0.35%
ZHONGYUAN BANK CO., LTD. 0.00% 1.04 End-of-day quote.0.97%
All news about BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED
01/13Shanghai Bourse Sanctions Brilliance Auto Over Violations in Wake of Bond Def..
MT
2020Brilliance Auto Unit Axes Plan to Pledge Stake in Hong Kong-listed Brilliance..
MT
2020MARKET CHATTER : Former Chairman of Brilliance China Auto's Parent Company Faces..
MT
2020Ex-chairman of Huachen, parent of BMW's China partner, under investigation - ..
RE
2020MARKET CHATTER : Creditors of Brilliance China's Parent Huachen Automotive Reeva..
MT
2020How parent of BMW's China partner drove to the brink of bankruptcy
RE
2020China's bond defaults show Beijing's war on debt is back
RE
2020China Vows to Investigate Bond-Market Misconduct
DJ
2020Brilliance China Auto Controlling Shareholder Under Probe in China over Discl..
MT
2020MARKET CHATTER : Brilliance China Auto Enters Debt Restructuring
MT
More news
Financials
Sales 2020 3 333 M 514 M 514 M
Net income 2020 8 313 M 1 281 M 1 281 M
Net Debt 2020 1 776 M 274 M 274 M
P/E ratio 2020 3,40x
Yield 2020 7,41%
Capitalization 27 449 M 4 236 M 4 229 M
EV / Sales 2020 8,77x
EV / Sales 2021 7,70x
Nbr of Employees 5 390
Free-Float 69,4%
Chart BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED
Duration : Period :
Brilliance China Automotive Holdings Limited Technical Analysis Chart | 1114 | BMG1368B1028 | MarketScreener
Technical analysis trends BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED
Short TermMid-TermLong Term
TrendsBullishBearishNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 25
Average target price 8,66 CNY
Last Close Price 5,44 CNY
Spread / Highest target 130%
Spread / Average Target 59,1%
Spread / Lowest Target 11,8%
EPS Revisions
Managers and Directors
NameTitle
Bingzhe Yan Chief Executive Officer & Executive Director
Yu Min Qi President
Xiao An Wu Chairman
Zu Ming Qian Chief Financial Officer
Bing Jin Xu Independent Non-Executive Director
Sector and Competitors
1st jan.Capitalization (M$)
BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED-7.79%4 236
TOYOTA MOTOR CORPORATION-2.82%208 300
VOLKSWAGEN AG-0.35%97 768
DAIMLER AG-2.65%72 771
GENERAL MOTORS COMPANY20.00%71 522
BMW AG-3.90%54 163