Volvo owner Geely is set to take over an automaker battered by a prolonged sales decline exacerbated by the impact of the novel coronavirus, said three people with knowledge of the matter, in an indication of how the pandemic is stoking consolidation.
Zhejiang Geely Holding Group Co Ltd plans to become the top shareholder of Chongqing Lifan Holdings Ltd and inject fresh capital into China's one-time leading motorcycle maker, said two of the people, who declined to be identified as the matter was private.
The price and size of the stake and the amount of fresh capital were not immediately clear.
Geely, which is also the biggest shareholder in Daimler AG , declined to comment. Lifan did not respond to requests for comment.
The takeover comes as Chinese auto sales ended almost two years of decline in April, with the relaxation of virus-busting measures releasing pent-up demand.
Still, executives at some of China's biggest automakers have said they expect a changing landscape following the virus, with competition between both domestic and international automakers pushing smaller peers into restructuring or bankruptcy.
With employment a government priority this year, Geely's intervention in Lifan would be a boon for Chongqing's local economy for which the debt-laden firm is a major employer and taxpayer.
Liquidity-starved Lifan is set to propose debt restructuring to creditors on Saturday with options including asset sales and debt-to-equity swaps, and plans to complete the restructuring as early as August, said the two people.
Lifan's debt totalled 31 billion yuan ($4.4 billion) in June last year, with 60% due within a year, while assets stood at 41.5 billion yuan, company filings showed. Its cash balance was 370 million yuan versus 3.1 billion yuan at the end of 2017.
The automaker had only 450 million yuan out of 12.6 billion yuan worth of credit lines from 25 banks, filings showed.
Lifan was founded by entrepreneur Yin Mingshan in 1992 as a motorcycle maker and produced its first car in 2006 - the Lifan 520 four-door sedan which was later exported to Russia. Sales have remained a fraction of domestic peers such as Geely.
In 2018, it raised nearly 4 billion yuan selling land to the government and unit Lifan Motors to electric vehicle (EV) startup Li Auto.
After completing the takeover, Geely plans to shift part of its EV business and production to Lifan, said one of the people.
($1 = 7.0797 Chinese yuan)
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