Evergrande’s EV firm jumps 60% on $3.4 bn fundraising plan

Firm has bounced back after a probe late last year into claims the company took advantage of local governments’ NEV policies to buy land at ultra-low prices

Evergrande’s EV firm jumps 60% on $3.4 bn fundraising plan
The real estate conglomerate still has a massive amount of debt, estimated at about $110 billion at the end of last year. It also has little expertise in electric vehicles. However the latest stock buy-up has bolstered its expansion into the booming electric vehicle sector. Image: Reuters.

(ATF) The Hong Kong-listed electric vehicle (EV) firm set up by debt-laden property giant China Evergrande soared more than 60% during the day on Monday after it said it would bring in six Hong Kong and mainland tycoons to raise HK$26 billion (US$3.4 billion) to fund technology research and repay debt.

In a filing with the Hong Kong Stock Exchange on Sunday, China Evergrande New Energy Vehicle Group said it would raise HK$26 billion selling 952.4 million new shares at HK$27.30 each. The price represents a 9% discount to the last traded level on Friday, and the stake amounts to about 9.75% of its enlarged capital.

Some of the richest Hong Kong and mainland tycoons have agreed to subscribe for the shares, the company said. They include Chan Hoi-wan of developer Chinese Estate Holdings and spouse of Joseph Lau Luen-hung, as well as Liu Minghui, the founder of China Gas Holdings. Each will buy HK$3 billion of stake. The buyers have agreed to a 12-month lock-up on their shares.

The other four new investors are Cosmic Success Holdings Ltd, Upper World Ltd, Heyirong International Trade Co Ltd and Greenwoods Global Investment Ltd.

China Evergrande has once again surprised the market with its expansion into sectors in which it has little obvious expertise and its aggressive plans.

Its EV unit was previously Evergrande Health Industry Group Ltd, which after taking a shopping spree of controlling interests in EV companies, changed its name to China Evergrande New Energy Vehicle in August of last year. The EV firm subsequently launched its brand “Hengchi” (which means “forever galloping”) and six concept models - covering a full array of sedan, SUV, MPV and cross-order vehicles. Eight more EV models are reportedly in the works.

With 10 production bases in China under construction, and each with 100,000 units of production capacity planned, China Evergrande’s chairman Xu Jiayin (Hui ka-yan) has announced ambitious goals to make and sell 1 million cars per year by 2025, and five million cars per year by 2035. 

The company also received approval last year for a second listing on the the Nasdaq-style tech board, the Science and Technology Innovation Board (STAR Market), to fund its EV project, the timetable of which is still unknown.

PROBE ORDERED

Evergrande New Energy Vehicle’s shares in Hong Kong fell almost 10% on 25 November, after local media reported that China’s state planner has told local governments to investigate new energy vehicle projects linked to Evergrande Group.

An article by Chinese news portal Late Post titled “Evergrande’s Bizarre Story of Car-making” said Evergrande put on a show every time local officials visited its in Nansha district of Guangzhou city, and suggested that Evergrande had taken advantage of local governments’ favorable policies towards NEV projects to buy land for residential purpose at ultra-low prices.

“It purchased 11.3 million square meters of land for its NEV project but only about half can be used for industrial purposes. The remaining land is designated for residential, commercial or office building,” the report said.

Various recent local media reports said Evergrande’s EV project has encountered delays and government scrutiny.

In the meantime, China Evergrande, which holds a 75% stake in Evergrande New Energy Vehicle, jumped more than 8% on Monday at the EV firm’s fundraising plan, a move that analysts said could ease the group's financing woes.

CGS-CIMB Securities' China research head, Raymond Cheng, said the new fund would be enough for the business development of Evergrande New Energy Vehicle for the next 12 months, helping the parent company reduce further financing on the unit.

"Overall, it is another positive move for Evergrande to approach its orange or yellow category this year under the three red lines," Cheng said.

DEBT US$110 BILLION NOW

Investors have been concerned about cashflow at Evergrande as the country's most indebted property developer with interest-bearing indebtedness of about $110 billion at the end of last year scrambles to raise funds and cut debt in the face of tighter industry regulations.

Dubbed "the three red lines", Chinese regulators outlined caps on debt-to-cash, debt-to-assets and debt-to-equity ratios at a meeting last year, and developers would not be able to raise new debt if they are in the red category.

China Evergrande has vowed to cut debt by 20%, or 150 billion yuan, this year.

China Evergrande‘s stock rose about 4% last Monday after local media reported that its 61%-owned property management unit, also Hong Kong-listed, has vowed to more than double its area under management and increase its net profit by 50% this year. 

Spurred by the rise in demand for high-quality management services amid the Covid-19 pandemic, Evergrande Property had a stellar 2020 with its net profit skyrocketing 2.8 times to 2.6 billion yuan (US$400 million). 

Last Tuesday, China Evergrande jumped another 16% after the company said it would redeem billions of convertible bonds maturing in 2023.

China Evergrande’s EV unit reported a wider net loss of 2.46 billion yuan (US$380 million) in the first half of 2020 despite a 70% year-on-year growth in its revenues, which were 4.51 billion yuan ($697 million).

(With reporting from Reuters)

ALSO SEE:

China Evergrande asset disposals lift bonds but shareholders wince

Evergrande averts a real estate crisis by raising $1.8 billion

 Higher funding costs plague China Evergrande's bid to shed debt

China Evergrande offers 30% off all homes amid debt crisis

Developers face $53bn debt tsunami

China Electric vehicles China Evergrande EV subsidiary fundraising stock jumps latest escape act debt-laden developer US$110 billion debt