Embattled property developer China Evergrande Group said its listed electric vehicle arm will book a $3.6 billion gain from the transfer of two debt-laden companies to another group unit as part of the auto firm’s restructuring.
With more than $300 billion in total liabilities including offshore debt, Evergrande has been at the centre of a property debt crisis in which multiple Chinese developers defaulted over the past year.
Evergrande has touted the EV arm as key to its transformation plans. Chairman Hui Ka Yan vowed last year to shift the group’s primary business within 10 years from real estate to the automobile venture, and to make 1 million vehicles a year by 2025.
The restructuring, published in an Evergrande Group filing late on Monday, comes as the EV subsidiary, also known as Evergrande Auto, struggles with a funding crunch with production of its Hengchi 5 model, a crossover SUV, suspended at its Tianjin-based facilities.
Under terms of the deal, China Evergrande New Energy Vehicle Group will record a gain of about 24.79 billion yuan ($3.59 billion) following the sale of the entire issued share capital of its Flaming Ace Ltd and Assemble Guard Ltd businesses to investment business Anxin Holding for a nominal consideration of 2 yuan.
In a separate filing, Evergrande Auto said Assemble Guard and Flaming Ace, which hold 47 property projects altogether, as of end-2022 reported a net liability of 24.79 billion yuan and post-tax net loss of 8.82 billion yuan. It added in the filing it does not expect to receive any net proceeds from the transfer.
Evergrande said the move, which will allow Evergrande Auto to focus on the new energy vehicle (NEV) segment, could help improve the EV subsidiary’s valuation and eventually “may help to attract investors to Evergrande Auto and raise funds”.
The auto business said it can take its NEV segment to the next stage of growth by “de-leveraging and reducing its holding of the projects”.
The parent company announced a proposal last month to restructure its $22.7 billion of offshore debt, which gave creditors a basket of options to swap their debt into new bonds and equity-linked instruments backed by the group and its two Hong Kong-listed companies, Evergrande Auto and Evergrande Property Services Group.
($1 = 6.9016 Chinese yuan renminbi)
Reuters