An announcement by Brilliance China has declared a special dividend to shareholders, with each ordinary share of the company receiving 4.3 Hong Kong dollars. In fact, just two months ago, Brilliance China had already distributed a special dividend, and after two rounds of dividends, the dividend yield has soared to 81.3%. Behind the frequent dividend distributions, it may be the company's attempt to resolve "historical legacy issues."

The continuous special dividends have attracted the attention of a group of investors to the dividend yield of Brilliance China.

On the evening of June 14, Brilliance China issued an announcement stating that it would distribute a special dividend of 4.3 Hong Kong dollars per share. Influenced by this news, on June 17, Brilliance China opened nearly 15% higher and closed with an 18.8% increase.

It is worth noting that since resuming trading in October 2022, Brilliance China has cumulatively announced four rounds of special dividends, involving approximately 35.8 billion yuan, equivalent to 7.72 Hong Kong dollars per share. Just two months ago, Brilliance China had distributed a special dividend of 1.5 Hong Kong dollars per share.

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In fact, in recent years, the bankruptcy and restructuring of Brilliance Group, the parent company of Brilliance China, due to a debt crisis, has had a significant negative impact on Brilliance China. It was not until the arrival of the "white knight" Shenyang Automobile that the company gradually returned to the right track.

However, the huge debt of Brilliance Group has made Shenyang Automobile somewhat strained, and the large amount of funds on Brilliance China's books seem to have become the key to solving this problem.

Dividend yield exceeds 81%

With a one-time payout of 21.7 billion Hong Kong dollars, Brilliance China once again demonstrates a large dividend distribution.

Recently, Brilliance China issued an announcement stating that after considering the group's financial and cash flow situation as well as any potential new strategic investment options, the board of directors resolved to declare a special dividend of 4.3 Hong Kong dollars per share. It is expected to be paid around July 25 to shareholders listed on the company's register as of July 9.

Affected by this, on June 17, Brilliance China's share price once surged by more than 25%. By the end of the trading day, Brilliance China closed at 8.47 Hong Kong dollars per share, with an increase of 18.79%.Public information indicates that Brilliance China Automotive Holdings Limited is an investment holding company primarily engaged in the manufacturing and sales of BMW automobiles. The company operates through two business segments: the manufacturing and sales of light passenger vehicles and automotive parts segment, and the manufacturing and sales of BMW cars segment.

It is worth mentioning that Brilliance China's main subsidiary is Shenyang Brilliance Jinbei Automobile Co., Ltd., which accounts for approximately 90% of the company's operating revenue.

It has been reported that on April 17, 2024, Brilliance Renault Jinbei Automobile Co., Ltd. received a series of documents from the People's Government of Dadong District, Shenyang City, including the "Notice of Housing Expropriation," the "Decision on Housing Expropriation," and the "Notice of the Housing Expropriation and Compensation Resettlement Plan for the BMW West Plot in Dadong District," which could potentially bring no less than RMB 450 million in monetary compensation to Brilliance China.

In fact, after selling a 25% stake in Brilliance BMW Automobile, Brilliance China also distributed a special dividend to its shareholders. On April 15th of this year, the board of directors of Brilliance China resolved to declare a special dividend of HKD 1.5 per share, expected to be paid in cash around May 17th to shareholders listed on the company's register as of May 3rd.

It is not difficult to find that this year, Brilliance China has distributed two special dividends totaling HKD 5.8 per share. Relative to the closing price of HKD 7.13 per share on the last trading day before the announcement, the company's dividend yield for this year has reached an astonishing 81%.

If calculated based on Brilliance China's total share capital of 5.045 billion, the company has distributed a total of HKD 29.3 billion in dividends this year. According to Brilliance China's 2023 annual report data, as of December 31, 2023, the company had cash on hand of RMB 30.8 billion, equivalent to approximately HKD 33.2 billion, which can be described as a "clearance-style" dividend distribution.

This means that after the distribution of dividends, Brilliance China will only have HKD 3.9 billion in cash on hand, and with the company having a certain scale of liabilities, it is expected that there will be no dividend actions for the remainder of this year.

Morgan Stanley commented on this dividend distribution, stating that although investors still have concerns about Brilliance China's long-term sustainable dividend policy and its own business operations, the bank expects that as the shareholder return plan becomes clearer, its risk-reward ratio will slightly improve.

It is worth noting that at the beginning of 2023, after benefiting from the sale of a 25% stake in Brilliance BMW, Brilliance China announced a special dividend of HKD 0.96 per share. On July 5th of the same year, the company announced another special dividend of HKD 0.96 per share, totaling HKD 9.6 billion for both distributions.

Behind Brilliance China's generous distribution, it may be an attempt to resolve the "historical legacy issues" of its parent company, Brilliance Group.Behind the Generous Dividends

In a sense, Brilliance China was "held back" by its parent company.

The upheaval within Brilliance Group began with a debt default in June 2020. It is reported that the second phase of Brilliance Auto's 2017 private placement corporate bonds (17 Brilliance Auto 05) had a redemption date of October 23, 2020. However, at that time, Brilliance Group triggered a substantial default due to its inability to redeem 1 billion yuan in private bonds on schedule.

It is known that Brilliance Group was established in 2002, with four listed companies under its umbrella: Brilliance China, Shenhua Holdings, Jinbei Auto, and Xinchen Power, in addition to the joint venture Brilliance BMW established with BMW through Brilliance China. Because of this, at that time, few would have thought that this "small" amount of ten billion would pierce through this "giant ship" with total assets once exceeding 170 billion yuan.

On November 16, 2020, Brilliance Group was reported to have a debt default amount of up to 6.5 billion yuan, with a total overdue interest amount of 144 million yuan, on the brink of bankruptcy. A few days later, the Shenyang Intermediate People's Court ruled to accept the restructuring application of the creditors against Brilliance Group.

However, the subsequent restructuring process was not smooth. The first restructuring plan was postponed from September 2021 to June 2022 before being announced. In addition, since the substantial consolidation and restructuring began in March 2021, Brilliance Group held multiple creditors' meetings. However, due to the creditors' failure to reach a consensus on the disposal of key assets, the restructuring plan draft was delayed in approval.

It was not until May 29, 2023, that Brilliance Group confirmed Shenyang Auto as the selected investor in the restructuring plan, and the white knight arrived. It is worth noting that the actual controller behind Shenyang Auto is the Shenyang Municipal State-owned Assets Supervision and Administration Commission.

It is worth mentioning that announcements from Jinbei Auto and Shenhua Holdings once revealed that the purpose of establishing Shenyang Auto was to develop the automotive industry in Shenyang City, and acquiring Brilliance Group is undoubtedly one of its important layouts.

On June 14, 2023, Shenyang Auto signed a substantial consolidation and restructuring investment agreement with Brilliance Group and 12 other companies. Shenyang Auto planned to take over the assets of Brilliance Group with a transaction consideration of no more than 16.4 billion yuan. On August 2 of the same year, the Shenyang Intermediate People's Court ruled to approve the restructuring plan of Brilliance Group and terminate the restructuring procedure.

However, the development of events did not go as smoothly as expected.The Calculations of Major Shareholder Shenyang Automobile

It is reported that in July 2023, the creditors' meeting reviewed and approved the third restructuring plan, which stipulated that the debt of Brilliance Auto Group was forgiven from over 70 billion to 16.4 billion. Shenyang Automobile would conditionally repay the debt and take over the assets of Brilliance Auto Group, with the condition being to first sell 0.44% of the shares of Brilliance China through an auction.

In fact, only a shareholding ratio below 30% would not trigger a mandatory tender offer for minority shareholders. At the same time, the auction of 0.44% of the shares would help Shenyang State-owned Assets Supervision and Administration Commission (SASAC) to acquire 29.99% of the shares of Brilliance China at a level lower than cash, thereby completing the restructuring of Brilliance Auto Group and regaining control over it.

In addition, reducing the shareholding ratio to below 30% could also alleviate investors' concerns about the privatization of Brilliance China to a certain extent.

However, on February 6, 2024, Brilliance China announced that the sale of 0.44% of the shares by Liaoning Xinrui through auction was officially terminated and would be disposed of in other ways.

It was not until the announcement on March 12 this year that the transfer of the 0.44% of the shares was completed. On March 15, Shenyang Automobile announced that the company would complete the share transfer within three days after the transfer of the 0.44% of the shares as agreed, officially becoming the controlling shareholder of Brilliance China, holding 29.99% of the shares.

It is reported that this amount of up to 16.4 billion will be repaid by Shenyang Automobile in five installments. They are 3.7 billion before March 1, 2024, 4.8 billion before May 1, 2024, 3.7 billion before August 1, 2024, 2.1 billion before February 1, 2025, and 2.1 billion before August 1, 2025.

On March 29, Shenyang Automobile performed the first two payments as agreed, totaling 8.5 billion. In the two rounds of dividends executed this year, Shenyang Automobile is expected to receive about 8.9 billion (pre-tax) in dividends, which will undoubtedly greatly alleviate the debt repayment pressure on Shenyang Automobile.

At present, it is still worth the market's expectation whether Brilliance China can welcome a new life after gradually getting rid of the heavy historical "burden".