Parent of BMW’s Chinese partner defaults on a bond, as declining car sales pile on to the debt woes of China’s corporate borrowers

Huachen Automotive Group was not able to repay a 1 billion yuan (US$149.1 million) corporate bond with 5.3 per cent annual coupon

Huachen had 17.2 billion yuan in outstanding bonds as of October 23

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A man working at the Tiexi factory at BMW Brilliance Automotive (BBA) in the Liaoning provincial capital of Shenyang in north-eastern China on February 17, 2020. Photo: Xinhua

Published: 6:30pm, 27 Oct 2020Updated: 10:17pm, 27 Oct 2020

Huachen Automotive Group Holding, the state-owned parent of BMW‘s main Chinese joint-venture partner, has defaulted on a bond payment, heightening fears about the debt-ridden carmaker’s fate.

The company was not able to repay a 1 billion yuan (US$149.1 million) corporate bond paying 5.3 per cent in annual coupon, which it sold via a private placement three years ago. The group is “working hard to raise money and discussing with investors to iron out the issue,” according to a Shanghai Stock Exchange filing.

Huachen is the parent of Hong Kong-listed Brilliance China Automotive Holdings, which owns 25 per cent of a venture with BMW, making Series 1, 3 and 5 passenger sedans in the Liaoning provincial capital of Shenyang in north-eastern China.

Its default is the latest in a long list of missed payments by China’s private sector and state-owned borrowers, as the slowest economic growth pace in decades cause earnings to dwindle and make it harder to meet payment schedules in the US$15 trillion onshore bond market.

“Default by a state-owned carmaker could affect bond market sentiment,” said Gu Weiyong, the chief investment officer at Shanghai-based asset manager Ucon Investment. “The grim reality is that many Chinese companies have yet to entirely emerge out of the Covid-19 pandemic.”

SCMP Infographics: Global carmakers and their China venture partners

China’s automotive industry, which surpassed the United States in 2009 as the world’s largest automotive market, has been saddled with almost two years of declining sales, as the slowest economic growth pace in decades deterred households form big ticket purchases. Sales began to recover in the second half, but not enough to avert 2020 being the third consecutive year of declining sales.