Brighter outlook bolsters Brilliance

Shares in minivan maker Brilliance China Automotive Holdings rose 7.92 per cent yesterday amid optimism about its future in the hands of a mainland provincial government.

The stock closed at a near two-month high of HK$1.09 in response to optimism by local brokerages on the company's sales performance in expectation of enhanced corporate governance and transparency.

Investors had been scared off by news of an ownership dispute between the company's former high-profile chairman Yang Rong and the Liaoning government.

A BOC International report said the share price had fallen because of market concerns about the company's complicated corporate structure and management reshuffles.

'We believe that a reorganisation is positive for [the company] as a clear corporate structure might help to alleviate existing market concerns,' the report said.

The dispute, which has been going on for more than six months, has contributed to a fall of about 40 per cent from the stock's highest price in the past year. It closed at 98 HK cents last Monday before trade was suspended.

The company released an announcement on Thursday confirming media reports that the provincial government was poised to take control.

The Liaoning government, through an unnamed 'wholly-owned subsidiary', has approached the Chinese Financial Education Development Foundation, the controlling shareholder, for possible acquisition of all or part of its interest in the company.

Tai Fook Securities was quoted by Reuters as saying the possible takeover by the government would be a 'good opportunity' for the company to revamp its corporate governance and transparency in order to restore investor confidence.

However, other analysts were cautious about the company's future, saying it remained to be seen whether a government-backed management could perform any better than Mr Yang.

A Brilliance China source earlier said the prospective government-backed buyer would remain a 'passive investor' and not be involved in the operation.

The optimism towards the company was also fuelled by its improved sales performance since the second quarter.

BOC International said Brilliance China's minivan sales volume rose 4 per cent year on year to 55,592 units from January to October, from a 3 per cent year-on-year drop in the first half.

The company launched a sedan earlier this year and by the end of last month had sold 3,238 units.

The sedan project was expected to incur an initial loss of 228 million yuan (about HK$213.7 million) this year due to start-up costs, but should be profitable by next year, the report said.