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China Evergrande Shares Surge 50% on $3.2B Revamp

In a significant turn of events, China Evergrande New Energy Vehicle Group (NEV) witnessed a remarkable surge of nearly 50% in its shares on Tuesday. The surge in shares came on the heels of a pivotal announcement by the electric vehicle arm of the financially embattled China Evergrande Group. The announcement unveiled a comprehensive $3.2 billion plan devised to alleviate debt pressures and ensure the company’s continued operation.


On Monday, the NEV unit revealed its multifaceted strategy, which includes a fresh injection of capital through a new share issuance valued at nearly $500 million. This infusion of funds will be facilitated by Dubai-based mobility firm NWTN, which has agreed to acquire a substantial 27.5% stake in Evergrande NEV. This strategic partnership is poised to play a vital role in the company’s rejuvenation.


The overall financial package also encompasses a debt-for-equity swap totaling HK$20.89 billion (equivalent to approximately $2.7 billion) with key creditors. Notable participants in this arrangement include China Evergrande, its founder Hui Ka Yan, and the entity Xin Xin (BVI) Ltd, among others. By engaging in this debt conversion, Evergrande NEV seeks to establish a more sustainable financial structure while navigating the complex terrain of its economic challenges.


In a released statement, China Evergrande acknowledged the inherent risk of discontinuing its NEV Group operations if a fresh influx of substantial funding were not secured. The involvement of NWTN is expected to be transformative, as the capital injection will bolster the automaker’s financial performance. Furthermore, the strategic collaboration is anticipated to deliver crucial business and operational support, lending a helping hand to steer the company on a path towards stability.


It is worth noting that Evergrande NEV had recently divulged its long-delayed financial results, disclosing a combined net loss totaling nearly $10 billion for the years 2021 and 2022. The unit has grappled with mounting pressure since its parent company entered a debt crisis in the middle of 2021. In a dire warning issued in March, the automaker had even signaled the possibility of shuttering its operations unless it secured fresh injections of capital.


The intricate web of economic challenges further entangled the situation, with the broader backdrop of China’s vulnerable property market taking center stage. The ongoing turmoil was exacerbated by the significant concerns stemming from Country Garden, the country’s largest private real estate developer. Country Garden’s inability to meet coupon payments and its revelation of a potential loss of up to $7.6 billion for the first half of the year amplified the existing fragility of the property market.


The proposed investment from NWTN, subject to regulatory approval and the successful completion of the debt conversion package, will also bestow upon the Dubai-based firm the authority to nominate a majority of Evergrande NEV’s board members. Although NWTN is listed in the U.S. market, its plans for electric vehicle production are still in the pipeline, as indicated in its 2022 annual report released in May. The company has been actively preparing a manufacturing facility in the Chinese city of Jinhua, in addition to an assembly facility located in Abu Dhabi.


Upon the culmination of the deal, China Evergrande’s ownership stake in the NEV unit will undergo dilution, resulting in a reduced share of 46.86%. This shift will signify the transformation of the automaker from a non-wholly owned subsidiary of Evergrande to an entity with increased autonomy.


Following the initial surge of 47% in shares on Tuesday, the momentum slightly receded to a gain of around 2%. The meticulously devised plan to alleviate debt, procure fresh funding, and enlist strategic support from NWTN is poised to drive Evergrande NEV’s financial resurgence and the initiation of mass production for its electric vehicles.


The comprehensive rescue strategy is poised to extend a degree of solace to China’s delicate property market, which had been reeling from the aftershocks of Country Garden’s financial predicament. With a reported potential loss of $7.6 billion for the first half of the year, the property market had been grappling with a heightened sense of uncertainty.


In summation, the unveiling of the $3.2 billion rescue plan stands as a crucial milestone in Evergrande NEV’s journey towards alleviating its debt burden, enhancing its financial performance, and ultimately positioning itself as a sustainable and viable enterprise. The collaboration with NWTN and the strategic investment mark a decisive step in the company’s transformation, offering a glimmer of hope for its future endeavors.

Source: Reuters

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