Borgward Automobile bankruptcy, Foton Motor last year a huge loss of more than 5 billion, high leverage under the capital chain is still good?

Intern journalist | Feng Yuchen

With Beijing Borgward filing for bankruptcy liquidation, Foton Motor's profits were affected and detracted from "doom".

Recently, Foton Motor (600166.SH) announced that due to the financial exhaustion of Beijing Borgward Automobile Co., Ltd. (hereinafter referred to as "Beijing Borgward"), it is unable to pay off its debts as they fall due, and its assets are insufficient to pay off all its debts, so it applies for bankruptcy liquidation and submits relevant applications to the Beijing No. 1 Intermediate People's Court.

Beijing Borgward is a company acquired by Foton Motor in 2015 for 5 million euros. As of the announcement date, Beijing Borgward still has outstanding equity transfer prices, arrears, etc., plus investment income and other matters, which is expected to affect Foton Motor's total profit last year - 5.326 billion yuan.

To make matters worse, Foton's performance is not optimistic, and the asset-liability ratio has exceeded 70% for three consecutive years. Foton, how to alleviate anxiety?

Last year's huge loss exceeded 5 billion

On the evening of January 28, 2022, Foton Motor disclosed its 2021 annual performance forecast. The company expects net profit attributable to shareholders of listed companies last year to be around -5.035 billion yuan.

The pre-performance loss was mainly due to the impact of the impairment of Beijing Borgward-related matters during the reporting period. Specifically, the balance and interest of Beijing Borgward's equity transfer are 1.671 billion yuan, and the impairment is about 995 million yuan in the reporting period, with a cumulative impairment of about 1.650 billion yuan; The borrowing and interest of Beijing Borgward shareholders is 1.873 billion yuan, and the impairment is about 1.387 billion yuan in the reporting period, with a cumulative impairment of about 1.813 billion yuan; Beijing Borgward owes 1.485 billion yuan, with an impairment of about 1.014 billion yuan in the reporting period, with a cumulative impairment of about 1.342 billion yuan; long-term equity investment of 534 million yuan, with a full impairment in the reporting period; and 1.456 billion yuan in recovery of Borgward vehicle assets After considering the recoverable value, an impairment of about 774 million yuan is accrued; the total profit affected by the above impairment is expected to be about -4.704 billion yuan. Considering also that the company's investment income recognized due to its shareholding in Beijing Borgward, the total profit of the listed company is expected to be about -5.326 billion yuan.

In terms of performance forecast, the announcement further explains that after deducting the impact of the above-mentioned factors related to Borgward matters, the company's total profit in 2021 is about 355 million yuan.

According to the performance forecast, the company's non-recurring profit and loss in 2021 is expected to be about 517 million yuan, and the net profit attributable to the shareholders of the listed company after deducting non-recurring is expected to be about -5.552 billion yuan.

This is not the first time that Foton Motor has said in its announcement that profits are affected by Beijing Borgward.

On January 18, 2019, Foton Motor transferred 67% of the equity of Borgward Automobile to Changsheng Xingye (Xiamen) Enterprise Management Consulting Co., Ltd., and then on January 29, 2021, Foton Motor issued a pre-reduction announcement on its 2020 annual results, saying that due to the impact of Beijing Borgward's related debt impairment provisions, equity recognition investment income and other matters, the total profit in 2020 decreased by a total of about 1.874 billion yuan. On April 22, 2020, Foton Motor issued a correction announcement for the 2019 annual performance forecast, in view of the overdue equity transfer payment of Beijing Borgward, resulting in a decrease in the company's net profit attributable to the mother of -191.58 million yuan.

The "fall" of Beijing Borgward will make Foton Automobile's already unoptimistic performance suffer again. In the third quarter report of 2021, Foton Motor achieved operating income of 12.818 billion yuan, net profit attributable to shareholders of listed companies of -315 million yuan, and non-net profit attributable to shareholders of listed companies of -367 million yuan.

For three consecutive years, the asset-liability ratio exceeded 70%

Interface News noted that Foton's asset-liability ratio is not low. According to the announcement data, at the end of the third quarter of 2021, Foton Motor's asset-liability ratio reached 71.18%, and the total liabilities were 38.9823 billion yuan, of which current liabilities were 31.741 billion yuan. In 2020, 2019 and 2018, Foton Motor's asset-liability ratio was 74.17%, 71.39% and 70.74% respectively, which also exceeded 70%.

At the same level, according to Dongfeng Motor (600006.SH), China National Heavy Duty Truck (000951.SZ), FAW Jiefang (000800. SZ) released the 2021 annual report data, the asset-liability ratio of the three car companies at the end of 2021 was divided into 58%, 58%, and 62%, which was far lower than That of Foton Motor.

Yang Delong, chief economist of Qianhai Open Source Fund, said in an interview with reporters, "Although different industries have different criteria for delineating the optimal asset-liability ratio, there is no unified opinion on the standard. Generally speaking, the appropriate level of corporate asset-liability ratio is between 40% and 60%, and if the asset-liability ratio is higher than 70%, even for enterprises in the automotive industry, such an asset-liability ratio is in an excessively high state. ”

In addition to the high financial leverage, Foton Motor's short-term solvency is also uncertain. According to further statistics from Interface News, according to the data of the third quarter report of 2021 and the annual report of 2020 disclosed by Foton Motor, the quick ratio of Foton Motor is 0.56 and 0.52 respectively, while according to the 2021 annual report data of Dongfeng Motor, China National Heavy Duty Truck and FAW Jiefang, the quick ratios of the three peer companies are 1.2, 1.23 and 1.05, respectively. In contrast, Foton's quick ratio is much lower than 1.

For car companies, an important factor affecting performance is sales. According to Foton Motor's december 2021 production and sales data express, from January to December 2021, Foton Motor's cumulative sales volume was 650,018 units, down 4.43% year-on-year, and the cumulative output was 622,396 units, down 10.60% year-on-year.

Under the internal and external troubles, Foton Motor's operating cash flow will face the lowest since 2018.

Photo: Foton Motor's operating cash flow over the years. Image source: Wind Financial Terminal

On April 6, in order to improve the efficiency of the use of related assets, Foton Motor announced that it would transfer 60% of the equity of its subsidiary Beijing Zhiyue on the Beijing Equity Exchange at a transaction price of 342 million yuan. On April 1, Foton Motor announced that it intends to issue about 1.429 billion shares to the controlling shareholder BAIC Group in a non-public manner, and the total amount of funds to be raised is about 3 billion yuan, accounting for 21.73% of the total share capital of the company before the issuance, and the issue price is 2.1 yuan per share. In the announcement of the offering, Foton Motor said, "The funds raised by the company's non-public issuance of shares will be used to supplement working capital and repay debts." ”

Since then, BAIC Group has directly held 1.805 billion shares of Foton Motor, and indirectly held 28 million shares of the company through Galaxy Capital-Bohai Bank-Beijing Automotive Group Industrial Investment Co., Ltd., with a total shareholding ratio of 27.89%.

It is reported that Foton Motor has also transferred assets such as the stamping business of Beijing Auman Heavy Duty Truck Factory, Hebei Resa Heavy Industry and Huairou Heavy Machinery Factory at a listing price of 196 million yuan, 247 million yuan and 1.097 billion yuan respectively.