(Yicai Global) Sept. 2 -- Tech New Group, a vehicle manufacturer and controlling shareholder of Chinese carmaker Zotye Automobile, filed a petition for bankruptcy and restructuring because of the huge slump in Zotye’s car sales and the huge deficit thus generated, which a court has accepted.

The court in Yongkang in eastern Zhejiang province where New Group is based agreed to docket the case, verifying that the parent is insolvent, with a balance of assets less than its debts, and thus insufficient to clear current liabilities, but that its business is worth restructuring, deeming its operations recoverable via a Chapter 11-style reorganization, according to a statement from Zotye yesterday.

Zotye shares [SHE:000980], which are the subject of a delisting warning and characterized as ‘special treatment’ because of the company’s massive losses, hit the 5 percent daily up limit set on such stocks to stop trading CNY1.34 (19 US cents) today.

Whether this bankruptcy and restructuring can succeed is uncertain, Zotye said, adding that, as an operating entity distinct from its parent, it is independent in businesses, assets, organizations, finance and other respects. For Tech New Group to resort to bankruptcy protection will thus have no influence on its current production and daily operations.

Founded in 1992, with its actual controllers being the married couple Ying Jianren and Xu Meier, Tech New Group’s major businesses are manufacturing and sales of vehicles and key auto parts, real estate, electronic components and corresponding materials. It operates two listed units, Zotye and Anhui Tongfeng Electronics. Zotye’s car-making business made up 80 percent of the parent’s first-half revenue last year.

Unreal McCoy

Tech New Group holds about a 38.8 percent stake in Zotye, which is notorious for its copycat luxury car models. Its SR9, which debuted in 2016, is a lookalike of German carmaker Porsche’s Macan, but comes at sales prices ranging from CNY109,000 (USD15,963.3) to CNY162,000, about one-fifth that of the genuine article.

Zotye’s various affiliated auto production plants were effectively mothballed in the first half as funds dried up, a general downturn in the auto sector set in, and the Covid-19 pandemic bit deep, precipitating a 77 percent drop in its revenue to CNY770 million (USD112.8 million) and expanding its losses by 256 percent to about CNY1 billion.

The company took in around CNY3 billion in business income last year in an annual 79.8 percent decline, with its corresponding net deficit being CNY11.2 billion (USD1.7 billion) in an about 1,499 percent slump from 2018.

Tongfeng Electronics [SHA:600237] climbed 3.78 percent to close at CNY4.39 (63.9 US cents) today.

Editor: Ben Armour