- In the evening of 14 August, Evergrande New Energy Vehicle (“Evergrande NEV”) announced an USD 500 million strategic investment from Nwtn Motors, a deal that is expected to complete in the fourth quarter of this year.
- As a ‘white knight’, Nwtn Motors went public in US through a SPAC last November (Stock Code: NWTN.US), and the share price plummeted by 63% on the first day. Despite that the share price rebounded subsequently, it is still quite an unusual event. This Dubai-headquartered EV company, founded by 41-year-old Chinese businessman Alan Nan Wu, did not have any revenue for the past three years and held only about USD 210 million in cash at the end of last year, according to its annual report. On the company’s official website, there are only photos of a few concept cars and no signs of production in any of these models.
- Because the announcement was made immediately after the voting deadline for the restructuring plan, in addition to the share placement price is merely HKD 0.6297 per share (a 63% discount to the closing price on 14 August), it can easily lead to speculations that Hui Ka Yan is engineering a share subscription at this lower price through his own connections to regain control of the company. Upon completion of the restructuring and the share placement, China Evergrande and Nwtn Motors will collectively own 49.25% of Evergrande NEV (see Chart 1).
- Hui Ka Yan mentioned before that he would like to shift the Group's key focus from real estate business to EV business in the next ten years, and therefore Evergrande NEV is the crucial piece of the plan. The latest announcement also highlighted that Evergrande NEV has signed an agreement with China Evergrande to roll over the RMB 5.5 billion payables to the parent company for 10 years without interest.
- In comparison with original restructuring plan, for Evergrande’s Option 2 Package, the ratio of shares allocated to Evergrande NEV mandatory exchangeable bonds against total shares outstanding will decrease from 38.88% to 28.18%; the ratio of secured shares under the Evergrande NEV security-linked bonds against total shares outstanding will also decrease from 30% to 21.75%. However, it should be noted that the number of shares allocated to the creditors remains unchanged, so it should be favorable to Evergrande’s creditors who choose Option 2 Package as long as the strategic investment can boost the share price of Evergrande NEV.
- From operational perspective, Evergrande NEV is in dire need of new capital. It was previously reported that the company is facing the risk of production halt as a result of capital chain rupture. In fact, since the announcement of the delivery of Hengchi 5 last year, the company has only delivered 1,000 units as of the end of this May. Although some people said it was due to a lack of orders, we believe that the probable cause should be the lack of capital to carry out mass production. Therefore, even if USD 500 million is not considered a significant sum, it can help to tackle the pressing need for Evergrande NEV.
- Theoretically, the issuance of new shares only requires shareholders’ approval (but shareholders with material interest in the transaction shall abstain from voting). However, according to the term sheet of the restructuring plan, the Group may need to obtain the approval from major creditor group as well to perform similar actions. Currently, Evergrande has communicated with creditors holding an aggregate principal amount of more than RMB 13 billion, and has not received any negative opinion from these creditors yet. In addition, the Group has already entered into a binding written memorandum of understanding with creditors holding an aggregate principal amount of more than RMB 6 billion.
- A key prerequisite for the strategic investment is the offshore restructuring plan to go through. As the official poll will take place in the scheme meeting on 23-24 August, it is still highly uncertain if this transaction can be completed.
Chart 1: Evergrande New Energy Vehicle's Equity Ownership Structure
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in EVERRE 8.250% 23Mar2022 Corp (USD) and EVERRE 7.500% 28Jun2023 Corp (USD), and the analyst who produced this report holds a NIL position in the abovementioned securities.
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