(Yicai Global) Feb. 3 -- Chinese carmaker Brilliance China Automotive Holdings has denied a Reuters report of a takeover by FAW Group. 

Shares in Shenyang-based Brilliance China [HKG: 1114] surged 13.5 percent after the report, closing at HKD7.22 (93 US Cents) today, giving it a market capitalization of HKD36.4 billion (USD4.7 billion). 

Reuters reported earlier today that FAW is planning to acquire a 30.4 percent stake in the company from its parent Brilliance Auto Group and the 11.9 percent stake in it held by Liaoning Provincial Transportation Investment Group. It will then target the remaining equity so as to take Brilliance China private, the report said citing sources, adding that the valuation of the transaction could reach USD7.2 billion. 

Headquartered in Changchun, the capital of northeastern Jilin province, FAW is one of the largest state-owned carmakers in China. 

Brilliance China denied the report after the close of trading today. 

The financial situation of Brilliance Auto has been worsening in recent years. It declared insolvency in November due to declining sales and said it would embark on a restructuring. Brilliance China is mainly in charge of the operation of joint-venture brands, in particular the production and sales in China of car models with its JV partner BMW. 

Brilliance China’s net profit rose 25 percent to CNY4.05 billion (USD626.7 million) in the first half of last year, according to its semi-annual earnings report. The net profit contributed by JV BMW Brilliance was CNY4.38 billion, which means the deficit in the company’s other business units exceeded CNY300 million. 

Brilliance Auto has said that the restructuring would only involve the group’s own brands, and not the JVs with overseas partners. It also transferred part of Brilliance China’s shares to Liaoning Provincial Transportation Investment Group last year, cutting its stake from 42.3 percent to the current 30.4 percent. 

Both Brilliance Auto and Liaoning Provincial Transportation Investment Group are state-backed companies. 

Editor: Tom Litting