(Yicai Global) Sept. 18 -- Zhejiang Yongkang Rural Commercial Bank, which is owed CNY150 million (USD22 million) plus interest by bankrupt Zotye Automobile, has asked a Chinese court to permit a pre-arranged sale of the carmaker's assets before it goes into administration.

Zotye Auto borrowed CNY3 billion (USD444.2 million) from four banks last August, the Yongkang, Zhejiang province-based company said in a statement yesterday. As part of the package, Zhejiang Yongkang Rural Commercial Bank extended a one-year loan, which Zoyte Auto has failed to repay.

Should the bank's request for so-called pre-packaged insolvency be approved, it would allow for the quick transfer of the vehicle manufacturer's remaining assets, ensuring the value of the business does not depreciate further and it would also save on administrative costs.

Zoyte Auto did not respond to Yicai Global’s queries regarding repayment of the rest of the CNY3 billion in loans.

The company is drowning in debt and its parent firm, Tech New Group, filed for restructuring bankruptcy of the unit on Sept. 2, indicating that it is unable to further support Zotye Auto and that it might hand over its controlling stake as part of the restructuring process.

The pandemic has pushed struggling players in China's auto industry to the brink. BAIC Yinxiang Automobile is in a 'zombie' state, Chongqing Lifan Automobile Sales has entered restructuring bankruptcy and production has halted at Jiangxi Hanteng Automobile. Last month, 18 carmakers did not produce a single vehicle, and 25 sold less than 100 units, according to industry data.

Revenue Plunge

In the first six months of the year, Zotye Auto produced just 574 cars and sold 1,417 as funds dried up, a general downturn in the auto sector set in and the pandemic bit deep. The firm's revenue plunged 77 percent to CNY770 million (USD114 million) and its loss widened to CNY2.7 billion.

Lack of money is the biggest problem facing Zotye Auto at present, an insider told Yicai Global, adding that "with additional funds, production and sales will slowly recover and the company will eventually return to normal operation."

As of June 30, Zotye Auto owed CNY14.4 billion (USD2.1 billion), just over a third of which were short-term loans. More than 100 lawsuits were filed against the firm in the six months through June involving CNY876 million. It also has other pending litigations involving CNY728 million.

There seems to be no easy solution to the situation. "Even if production restarts, it is unlikely that dealers who have had to fight for arrears will be willing to still do business with Zotye," said an agent who went to the carmaker’s headquarters in Yongkang and its sales unit in Hangzhou to try to get back money owed.

Editors: Tang Shihua, Kim Taylor