(Bloomberg) -- A Chinese automaker linked to BMW AG is looking increasingly in danger of a default, after missing a domestic bond repayment and seeing its debt sold off in recent days.With some of its yuan notes yielding above 150%, investors appear to have priced in a strong possibility of an ultimate failure by state-run Brilliance Auto Group Holdings Co. to honor a bond that came due Friday.What’s happening:Parent of BMW’s joint venture partner in China, Brilliance Auto failed to repay its 5.3% three-year 1 billion yuan ($149 million) bond on time and said it is trying to raise funds and seeking a solution with investors. The borrower has a 30-day grace period to make good on the debt.Investors don’t look optimistic. The automaker’s 5.4% bond due 2023 has plunged by almost 40% to 36.1 yuan since the latest round of selloff began a week ago. Its 6.2% bond due 2022 tumbled by about 83% on Tuesday to 10.3 yuan, according to Bloomberg-compiled prices. At least two of its notes carry implied yields of more than 150%.Shares of its Hong Kong-listed unit Brilliance China Automotive Holdings Ltd., which manufactures vehicles with BMW via a joint venture in China, dropped as much as 5.75% on Wednesday.Why does it matter: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 hosts some of China’s bleeding state-run firms, the automaker’s debt woes appear isolated in nature and threaten limited contagion.What’s the company: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 firms 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 net profit attributable to shareholders in the same period a year ago. Cash from operations fell 16.75% to 4.96 billion yuan in the first half, while that from investing activities dropped by 123.63% to a negative 4.6 billion yuan.What does the company say: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.What do ratings agencies say: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.What are traders watching next:Investors are now more focused on Brilliance Auto’s effort to raise cash for its bond repayment and whether it will be able to produce a debt workout plan with its major lenders on the creditor committee. All eyes are also on the Liaoning authorities who have so far remained mum on their stance over the troubled state firm.Anything Else?Brilliance Auto Bonds Priced for Default After Missed PaymentChina Automaker Seeking Funds for Note Payment; Bonds Slump Shares Sink in BMW’s China Venture on Concern Over Parent DebtsChina Automaker Yuan Bonds Sink Amid Concern over Firm’s Health(Updates share price in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Rosen Law Firm, a global investor rights law firm, announces it has filed a class action lawsuit on behalf of purchasers of the securities of Bayerische Motoren Werke AG (OTC: BMWYY, BAMXF) between November 3, 2015 and September 24, 2020, inclusive (the "Class Period"). The lawsuit seeks to recover damages for BMW investors under the federal securities laws.
(Bloomberg Opinion) -- “My chauffeur has difficulty parking our limousine” is the definition of a first-world problem but it’s one Mercedes-Benz was determined to solve with the latest iteration of its top-of-range S-Class saloon. The rear wheels can turn in the opposite direction to those at the front, which gives the hulking vehicle a smaller turning circle. “Wie praktisch!” (How practical!)Mercedes’s parent company, Daimler AG, has shown similarly impressive maneuverability during the pandemic. After delivering an astonishing 5 billion euros ($6 billion) of free cash flow during the July to September quarter, the German luxury car and truck maker has raised its full-year financial outlook. Operating profit is now expected to be about the same as last year’s 4.3 billion euros.True, this is a low bar — 2019 wasn’t a great year for Daimler. But it’s a remarkably resilient performance when many western markets are in recession and Mercedes is having to increase sales of less profitable hybrid and electric vehicles this year to meet Europe’s emissions targets.It’s also a much better outcome than the one investors feared when the company, like peers, shuttered factories in the spring. Some analysts had said Daimler would have to raise capital.An equity raise looks less likely now, provided the pandemic doesn’t get a lot worse. Daimler’s industrial businesses have 13 billion euros of net liquidity and the shares have more than doubled since March. There are signs that BMW AG and Volkswagen AG have done almost as well. BMW’s car sales rose 9% year-on-year in the third quarter and it produced 3.1 billion euros of free cash flow. The three German automakers generated almost 15 billion euros of free cash flow between them during that three-month period, estimates Bernstein analyst Arndt Ellinghorst.Euro zone economic data also show the manufacturing sector is faring much better than services. So what’s gone right for Germany’s automotive export champions?In one respect, their outperformance was almost preordained. French and Italian automakers have what’s called negative working capital: put simply, they try to hold little inventory and settle with their suppliers long after they’ve received payment from dealers. This helps generate cash when revenues are growing, but the effect is reversed when production stops suddenly. Supplier bills come due and cash rushes out the door. More than half of the 6.4 billion euros of cash that France’s Renault SA burned through in the first half of this year was down to working capital. The German carmakers don’t operate like this. Mercedes has in fact generated cash by reducing stocks of unsold cars and trucks and restarting production only gradually. BMW said working capital effects boosted its free cash flow, too, during the third quarter. More surprising has been the quick rebound in demand for luxury cars. Germany’s valued-added tax cut has helped sales at home. But China’s swift recovery from the virus is the biggest factor. Mercedes China sales rose 23% year-on-year in the third quarter. German carmakers’ globe-spanning sales team and assembly plants were considered a problem when investors’ biggest worry was the U.S.-China trade war. The large regional differences in containing the virus make that international presence an advantage. Peugeot SA’s sales, by contrast, are heavily concentrated in Europe.It also helps that Mercedes’s white-collar clientele still have jobs mostly. Some have even more spare cash because they’ve not had so many luxury holidays and expensive meals out this year. Sales of Mercedes sports-utility vehicles, which usually generate higher profit margins, jumped by almost a quarter in the three months to September.For the same reason, the pandemic has had only a modest impact on the company’s enormous car loan and leasing unit. Earlier in the pandemic Mercedes offered customers a payment holiday and warned of a possible rise in credit losses. But most customers have returned to a normal payment schedule. Used car prices have also stabilized.Meanwhile, the sense of urgency created by Covid-19 has given impetus to Daimler’s efforts to cut its bloated costs and curtail wasteful investment. After expanding for years, the Mercedes employee count has declined slightly in 2020. Shareholders will still wonder whether the current performance is sustainable and what Daimler might achieve in a “normal” year. With the virus surging again in Europe and the U.S., it will probably be a while before we find out. But Daimler and its German peers should be able to cope this winter. If only all European companies could say similar.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.