The listed electric vehicle (EV) arm of indebted property developer China Evergrande Group has entered into an agreement to raise $500 million in a strategic investment to keep its business afloat.
NWTN, a Dubai-based mobility technology firm founded in 2016 by Chinese entrepreneur Alan Nan Wu, will invest $500 million in Hong Kong-listed China Evergrande New Energy Vehicle Group (Evergrande NEV) for shares and a majority of the EV maker’s board, the companies announced on Monday.
The proposed transaction is expected to close in the fourth quarter of 2023, subject to conditions including Evergrande Group’s debt restructuring, as well as regulatory and shareholder approvals.
The proposed investment is “an important initiative” for Evergrande NEV to maintain operations, improve financial performance, and continue with vehicle delivery schedule, said the listed unit in a Monday filing to the Hong Kong stock exchange.
In a separate statement, NWTN said that it believes the Chinese EV maker can help address the market needs in the Middle East, including the United Arab Emirates, where the government’s efforts to boost the market share of clean energy to 30% by 2030 are expected to bring substantial EV growth opportunities.
Stay afloat
The deal is crucial for Evergrande NEV, which has been under pressure since its parent Evergrande Group got sucked into a debt crisis around mid-2021.
Evergrande Group, which was declared to be in default in late 2021, booked 2.44 trillion yuan ($335 billion) in total liabilities by the end of 2022 as the highest-profile casualty amid a broader crisis in China’s property market slump.
The EV unit had warned in March this year that it might have to wind up operations unless it receives new funding. Its financial struggle was just two years away from the firm’s peak valuation in April 2021, when it was worth more than Ford Motor and General Motors, despite not yet having started sales.
Investors in Evergrande NEV’s previous share sales include Sequoia Capital, Tencent Holdings, ride-hailing giant Didi Global, and Jack Ma-backed Yunfeng Capital.
Despite the expected massive capital injection, Evergrande NEV’s financial position is not quite reassuring. The firm in July reported a combined net loss of 71.12 billion yuan ($9.8 billion) for 2021 and 2022 in its long overdue financial results.
Moreover, Evergrande NEV, founded in 2019, only began delivering to the market its first electric sports utility vehicle (SUV) model, Hengchi 5, late last year. It has delivered a total of over 1,000 units of the electric SUV by the end of May this year.
Evergrande NEV’s stock is a key part of the parent’s debt restructuring. Evergrande Group has proposed to creditors a combination of new debt and instruments tied to the shares of the group itself or its two Hong Kong-listed companies, Evergrande NEV and Evergrande Property Services Group, a property-services unit.
As part of its restructuring proposal, Evergrande Group announced on Monday its plan for Evergrande NEV to issue a total of 5.44 billion new shares for HK$3.84 ($0.5) apiece to raise HK$20.89 billion ($2.7 billion).