Private car debt warning

On August 3, the China Securities Regulatory Commission approved Great Wall Motor’s application for the issuance of A-shares. Great Wall Motor will become the second privately owned car company listed on the A-shares and H-shares after BYD. However, judging from the draft prospectus issued on July 29, the amount of financing of approximately HK$3.6 billion (2.974 billion yuan) is still less than 60% of the investment in the proposed technology center.

Another private car company BYD, after issuing 1 billion yuan in bonds, also retreated to A-shares in the past month to resolve the urgency. Its financial report in the first quarter of this year showed that the crazy liabilities of private car companies in the past two years have approached liquidity. Twice. In private enterprises, Geely’s asset-liability ratio, which is known as “capital operation master”, is as high as 73%.

Obviously, private car companies are collectively "funds are in jeopardy." Even in the first quarter of this year, Great Wall Motor made 8 billion yuan, which could not eliminate the industry’s concerns about its rapid growth in liabilities within 4 years.

In the face of sudden economic turmoil and the self-investment of joint ventures such as the Volkswagen Group and Nissan, the privately owned car companies that were “thinner and more aggressive” were forced into the corner of funds. Behind the bright data it is struggling to support is a tight capital chain.

Therefore, even though the market conditions are not good, the reality that the debt is high and the follow-up development is short of money has forced privately-owned car enterprises to have to fight against the wind at the lowest point of the market. However, with the closing of a fan of "snobbish" financing, listing and issuing bonds appear to be the only remaining financing path for them.

"If you don't get enough money, private car companies will face the risk of capital chain fracture, so now only new debt can make up old debt," said one auto analyst.

Debt Storm "This is not a problem for Geely or BYD, and now the entire privately owned brand's capital chain is very tight." In the view of securities analyst Yao Yuan, privately-owned listed car companies are generally in a period of financial anxiety.

And in the context of Geely's deep recession warning of 71 billion debts and the listing of BYD's A shares being questioned, another private car company, Great Wall Motors, launched its second return to A-shares in three years.

However, more interesting than the size of the fundraising is that according to the financial data disclosed in the declaration form, Great Wall Motor's debt ratio has been rising rapidly since 2008. From the end of 2008 to the end of 2010, the liabilities were 3.679 billion yuan, 7.131 billion yuan, and 13.298 billion yuan respectively. By March 31 this year, its liabilities had reached 14.887 billion yuan, and the asset-liability ratio had risen from 34.40% in 2008 to 56.85. %.

Ironically, the rejection of the Great Wall Motor’s return to A shares three years ago was due to its relatively low asset-liability ratio. At the end of 2007, it was only 30.65% and it had ample cash flow of RMB 3.312 billion.

"The low debt-to-equity ratio has caused the lack of necessity for the company's overall financing. The relevant departments believe that it can fully rely on its own cash flow to meet its operating cash flow needs," said the auto industry analyst.

In the tightening of the listing window in 2008, Great Wall Motor had to start a number of investments with its own funds. However, three years later, the rapidly rising debt-to-equity ratio met the preconditions for listing financing, but it also leaked the pressure of the Great Wall's funding crisis.

In fact, the debt is high and the financing is shrinking. This is the common situation of the privately-owned auto companies that are currently listed in the country.

Geely Automobile recently dismissed its asset-liability ratio as high as 73%, saying that its "asset-liabilities ratio is completely reasonable, and it is consistent with the 70%-80% asset-liability ratio of large European and American auto companies."

According to statistics, after the consolidated statements, the total assets of Geely Group soared to RMB 96.7 billion, and the total liabilities also soared to approximately RMB 71 billion. The asset-liability ratio was approximately 73.4%. In this regard, Geely said that after the merger of Volvo cars, Zhejiang Geely Holding Group's monetary assets in 2010 was more than 21 billion yuan, with good solvency.

However, professionals believe that “in our country, the normal debt ratio of general industrial enterprises is between 30% and 50%, some industries can relax around 60%, and 70% of the debt ratio is the cordon that we generally consider, except for finance. Outside the industry and aviation industries, companies that exceed this level of debt, we will be particularly cautious in judging the risks that may arise to their financials."

Another argument is that the Volvo car as the initial instigator of Geely Group's high debt, diverted attention to Geely Automobile's own financial difficulties.

Geely has taken advantage of its claim that most of its increased debt of nearly RMB 53 billion comes from Volvo Cars. However, the data shows that Zhejiang Geely Holding Group, which merged Volvo cars, mainly relied on operating income support. The debt-to-asset ratio of Geely Automobile Holdings Co., Ltd. ("Geely Automobile"), a Hong Kong-listed company whose main business is that of Geely's holding auto assets, was as high as 62% by the end of 2010.

There is also BYD in private car companies in the eyes of debt crisis. Last year, BYD’s debt ratio rose from 52.96% in 2009 to 60.06%. Even more dangerous is that its current liabilities have increased rapidly in the past two years, from 14.036 billion yuan in 2008 to 18.087 billion yuan in 2009. In the first quarter of this year, the figure reached 304.59 billion yuan, which is close to double the current assets of 18.889 billion yuan, while the normal ratio is just the opposite.

Automobile analyst Zhang Jun said that compared to the “asset-liability ratio”, “liquidity liabilities” with short repayment terms are the biggest financial pressures for companies.

“In a healthy state, current assets should be at least twice the current liabilities, so that even if half of current assets cannot be realised in the short term, it can ensure that all current liabilities are repaid,” said Zhang Jun.

Corresponding to the bad debt situation, BYD's net cash flow from operating activities as of the end of 2010 was only RMB 3.1 billion, which was a substantial drop of 74% from the RMB 12 billion in 2009.

The current liabilities of Geely Group in 2010 accounted for 67.4%, of which the current liabilities of 47.97 billion yuan were already twice the amount of Geely cash.

In the first quarter of this year, the net cash flow generated from Haima Motor's operating activities fell by 91.34% year-on-year, from RMB 0.6 billion to RMB 57.65 million. Both the ending balance of long-term loans and current liabilities increased significantly.

At this point, the domestic privately owned brand-listed companies already have all the features of poor short-term debt repayment capability: the growth of current assets is slow, the current liabilities have increased rapidly, and the inventory has increased substantially.

Dilatation sequelae “Rising debt and financing difficulties are actually the aftermath of large-scale expansion in previous years”, said Zhang Jun. The auto industry has a long investment cycle. If it encounters a bad market situation, it will be very difficult.

BYD is a typical representative. After continuous “burning” of continuous mergers and acquisitions, construction of enclosures, and investment in the entire new energy industry chain, BYD’s funds have dried up, and follow-up investment demand has continued to increase.

The financial report shows that BYD’s “non-current liabilities due within one year” was 263 million yuan in 2009, but it reached 1.4 billion yuan at the end of the first quarter of this year.

The same applies to Great Wall Motors. Shang Yugui, deputy general manager of Great Wall Motors, frankly stated that Great Wall Motors faces a huge investment demand, and that the funds invested by the Great Wall in the future will require about 20 billion yuan. The analysis pointed out that although the profitability of self-owned brands is relatively strong, such a huge amount of investment will also drag down Great Wall Motor with a total asset value of only RMB 17.4 billion.

At the end of 2008, Great Wall Motor’s “non-current liabilities due within one year” was only RMB 4,520,800. In the first quarter of this year, this figure had reached 25,992,900 yuan.

More importantly, the decline in the auto market has weakened the most important sources of funds for self-owned brands.

BYD’s financial report in the first half of this year shows that sales of automobiles that have contributed almost half of its profit contribution have fallen by 20%, and the company’s net profit is expected to drop by 85%-95% year-on-year in the first half of this year.

"BYD's expansion is too fast," said Yao Yuan, a securities analyst at the auto industry. Like BYD, most of the independent brands have been spotted in the market environment in the past few years, but the huge investment in new products has not come. The good market timing, which makes its own thin brand of self-owned brand instantly lost the ability to withstand risks.

The situation of the Great Wall is slightly different. As for the reasons for the continuous rise in debt ratio in recent years, Great Wall Motor stated in its listing declaration that the rapid growth in sales led to an increase in production and purchases, resulting in an increase in accounts payable and bills payable. At the same time, the increase in sales also led to pre-acquisition of vehicles. The growth of money.

In addition, the impact from the joint venture's autonomy also made private car companies suffer from their enemies. Since the beginning of this year, Volkswagen has announced a total investment of 16 billion Euros in China, of which the joint venture’s own brand is the main investment appeal. Nissan also announced a few days ago that it plans to invest a total of 50 billion yuan in China in the next five years. Among them, it will ensure that the company’s own brand “Qi Chen”, which is owned by Dongfeng Nissan, achieves a sales target of 300,000 units in 2015. main content.

In the face of such a huge investment scale, the hunger of private car companies for hundreds of millions of dollars seems particularly desolate.

“It is definitely not feasible for private enterprises to rely on selling vehicles alone. Even state-owned enterprises must rely on four-way financing to make their own brands.” Yao Yuan pointed out that the market sentiment index has changed rapidly in 2011. Financing has become the main way for private auto companies to crack down on their difficulties.

Therefore, this year, BYD, Geely issued bonds, BYD and the Great Wall have launched A shares. Although the amount of financing is only a drop in the bucket compared with the investment of multinational brands that are in the midst of billions, it is a matter of life and death.

Financing in the cracks Great Wall Motors claims to have been looking for a good opportunity to go public, but it is clearly not a good time.

In the announcement of the proposed A-share issuance announced by Great Wall in last year, the estimated amount of fundraising was 4 billion yuan, but this year's fund-raising scale has shrunk to HK$3.6 billion (2.974 billion yuan).

“In cases where the country does not grant credits and banks do not hold loans, they can only use the money of listed investors,” Zhang Jun said. For private car companies, public financing is also the lowest cost method.

Although it failed in the sales market, but in the capital market, BYD was fortunate to come out with a wave of amazing market. On June 30, BYD A shares closed up more than 40% on the first day of listing, followed by a daily limit of two consecutive days, successfully financing 2.192 billion yuan. Prior to this, BYD had already issued 1 billion yuan in corporate debt to save the urgency.

Geely also issued a total of 1 billion yuan in corporate debt not long ago. Among them, 700 million yuan will be used for investment projects with an annual output of 300,000 automatic transmission projects and an annual output of 250,000 sets of automotive electronic systems and transmissions and other key component R&D centers. RMB 100 million will be used to repay bank loans and RMB 200 million Supplement company working capital.

In fact, there are not many financing windows open to private car companies. It is reported that after the Geely Volvo Daqing Base has obtained environmental protection certification, Daqing City Government's follow-up support has not been honored.

"The decline in the auto market, coupled with the recent tightening of local debt inspections, local governments will naturally be more cautious." Analysts said that once there are signs of a turmoil in national policies, banks must be the first to retreat.

Zhang Jun said that after the withdrawal of various car consumption incentives and the introduction of the Beijing restriction policy, banks have already shrank their efforts to lend to private car companies.

A person in charge of a domestic bank told reporters that when banks lend, they will not be treated differently because the company is a state-owned or private company, but there will be a risk control department to assess the company’s financial status and repayment ability. Compared with state-owned large and medium-sized enterprises, the debt ratio has a much greater impact on the financial risk indicators of private auto companies.

Earlier this year, Huatai spent 3 billion yuan to buy shares in Bank of Beijing because of this consideration. “Once Huatai has built a factory abroad, the first thing is to open a bank in the local area.” The official responsible for Huatai International Affairs said in an exclusive interview with reporters.

The information disclosed in BYD's prospectus shows that in the past three years, special government subsidies for BYD at all levels have been about RMB 1103 million, and the total amount of loans borrowed from various banks has been about RMB 12.845 billion. However, it is still unknown whether the government can continue to receive such support from local governments and banks in the future.

Great Wall has also made necessary early warnings in its prospectus: “The investment needs of the projects funded by this raised capital are large, but the company’s current financing channels are relatively monotonous and cannot effectively support the company’s subsequent development. Other effective financing channels may affect the company's speed of development in the coming years."

For now, it is the biggest wish of the Great Wall to gain the same listing financing effect as BYD.