Reuters reported Thursday Chinese state backed investors were considering taking BMW’s main Chinese joint venture partner Brilliance private in the latest such deal targeting beaten down Hong Kong listed shares.
The news agency said shares in Brilliance China Automotive Holdings reversed losses and rose as much as 12.3% to HK$7.86 on Wednesday afternoon, their highest since 17 August, following the news.
The deal to take it private would be led by state controlled Liaoning Provincial Transportation Investment Group which owns 12% of the automaker, multiple Reuters sources said.
The privatisation would attract other Chinese state backed investors and could begin as soon as the fourth quarter of the year, two Reuters sources said.
Brilliance parent, Huachen Automotive Group, told Reuters it had not obtained any relevant information about Liaoning Transportation Investment Group considering leading the deal.
Brilliance, Liaoning Transportation Investment Group, the provincial state asset regulator, and BMW did not immediately respond to Reuters’ requests for comment.
Reuters said Brilliance is 30% owned by Huachen Group, which is majority owned by the provincial state asset regulator.
The regulator supported the proposal and Liaoning Transportation Investment Group had talked to several banks about financing, three Reuters sources said.
The sources said prospective investors believe Brilliance is undervalued in Hong Kong as it is trading at 3.67 times expected earnings, way below the industry’s median multiple of 14.4, according to Refinitiv data.
Reuters noted the privatisation would come ahead of BMW buying another 25% to take control of the JV – BMW Brilliance Automotive (BBA) – for EUR3.6bn (US$4.2bn) in 2022.
Brilliance’s current 50% stake in the venture, which contributed to almost all the listed firm’s profit in 2019, would be worth EUR7.2bn euros ($8.4bn), 83% higher than its market value, Reuters noted. Its stake would halve to 25% after BMW increases its share.
Reuters’ sources said the privatisation proposal would not impact BMW’s plan to increase its stake in the JV, but Brilliance’s valuation was likely to weaken after it lost control of the venture even though it was likely to remain profitable.