Brilliance Releases Independent Investigation Findings, but Clarity on Outlook Is Still Lacking

Findings obtained by RSM reaffirm our view on Brilliance's poor internal control and corporate governance practices. As we discussed in a previous note “Unauthorized Guarantees and Missing Cash Knock FVE Back by 15%; Uncertainty Jumps to Extreme,” Brilliance issued a statement disclosing not only large amounts of unauthorized guarantees, made by its indirect wholly owned subsidiary SJAI, on Huachen’s loans but also a large amount of cash missing from its bank accounts. According to RSM, the primary cause of this series of incidents lies in the fact many Brilliance employees are beholden to Huachen, the heavily indebted parent company to whom Brilliance provided loan guarantees. We maintain the view that a change in Brilliance’s major shareholders or other restructure is needed before investors start looking to invest in this firm. We are also keeping our extreme uncertainty rating until there is a known long-term fix to these corporate governance issues. Now that the independent investigation has been completed, auditors have resumed preparing Brilliance's financial statements for 2020. It is estimated the audit will be completed by the end of December 2021. Trading remains suspended, but we suspect this will resume once 2020 earnings are released.