(Bloomberg) -- Renault SA agreed to acquire almost half of Brilliance China Automotive Holdings Ltd.'s unprofitable minibus unit, giving the French carmaker a foothold in light commercial vehicles in the world's largest auto market.
The manufacturers will invest a combined 1.5 billion yuan ($221 million) in Shenyang Brilliance Jinbei Automobile Co. in proportion to their stakes, the companies said in a joint statement Wednesday. As part of the deal, Renault will pay 1 yuan to take a 49 percent stake in the subsidiary. Brilliance shares gained 3.2 percent to HK$14.30 at the close in Hong Kong, the biggest gain since May 31.
Renault President Carlos Ghosn is using the company's strength in delivery and utility vehicles to expand in China and attempt to rescue a struggling unit of Brilliance after restoring the fortunes of industry giants from France's biggest carmaker to Japan's Nissan Motor Co. Shenyang Brilliance Jinbei reported losses of 1.1 billion yuan over the past two years and 3.6 billion yuan in liabilities as of the end of 2016.
“Whereas most investors now consider the minivan business a sizable and perpetual drag to Brilliance's value, we'd expect today's announcement to offer hope of a turnaround,” wrote analysts at Sanford C. Bernstein & Co., including Robin Zhu. The parent company's shares should gain, “given new hopes of a Renault-led turnaround.”
China's five-month light-commercial vehicle market totaled 106,900 deliveries, according to the analysts. That compares with 9.4 million passenger vehicles sold in the period, based on China Automotive Information Network figures.
Read more here about Renault's bid at reinvention in China.
Renault, whose light-commercial line includes the Trafic and Kangoo Express vans and Alaskan pickup truck, claimed about a 16 percent European market share in the segment last year. Brilliance said the cooperation will help “turn around its existing minibus operation as well as cultivate the full potential of the LCV market in China,” including bringing new-energy models to Jinbei's product offerings. The carmakers didn't specify a starting date for their project.
The light-commercial vehicle business has been an underperformer for Brilliance, which will probably report group net income jumped 31 percent to 4.8 billion yuan this year, according to analyst estimates.
Read about China's signals it will relax limit on foreign carmaker ventures here.
The partnership will add to Renault's operations in a market where competitors have a bigger presence. Until now, the company's sole partner in China has been Dongfeng Motor Group Co., which has wider cooperation with Paris-based rival PSA Group, including a large equity stake. German manufacturer Daimler AG makes Mercedes-Benz luxury models with BAIC Motor Corp., and the two signed an agreement Wednesday to invest a combined 5 billion yuan in developing electric vehicles.
Brilliance makes cars with BMW AG at two plants in Shenyang, including the 3-Series and 5-Series sedans.
--With assistance from Tian Ying and Yan Zhang
To contact Bloomberg News staff for this story: Ma Jie in Tokyo at jma124@bloomberg.net.
To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Tom Lavell, Marthe Fourcade
With assistance from Ma Jie
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