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The latest news from Evergrande Auto.

On the evening of July 28, China Evergrande New Energy Vehicle Group Co., Ltd. (00708.HK, hereinafter referred to as "Evergrande Auto") announced thatThe Company's subsidiaries Evergrande New Energy Automobile (Guangdong) Co., Ltd. and Evergrande Intelligent Automobile (Guangdong) Co., Ltd. (hereinafter referred to as the "Related Subsidiaries")On July 26, we received a notice issued by the relevant local people's court.

The main content of the notice shows that individual creditors of the relevant subsidiaries applied to the relevant local people's court on July 25 for bankruptcy reorganization of the relevant subsidiaries.This notice has a significant impact on the production and operation activities of the Company and its related subsidiaries.

Tianyancha shows that the relevant subsidiary is wholly owned by Evergrande New Energy Automobile Investment Holding Group Co., Ltd. Evergrande New Energy Automobile (Guangdong) Co., Ltd. and Evergrande Intelligent Automobile (Guangdong) Co., Ltd. have multiple announcements that list them as high-risk persons to be executed.

Evergrande New Energy Vehicle (Guangdong) Co., Ltd.Founded on January 28, 2019, it is engaged in the manufacturing of automotive parts and accessories, import and export of technology, import and export of goods, etc.

Evergrande Intelligent Automobile (Guangdong) Co., Ltd.Founded on February 12, 2018, it was formerly known as Evergrande Faraday Future Intelligent Automobile (Guangdong) Co., Ltd. and is mainly engaged in mechanical technology promotion services, mechanical technology consulting, exchange services and other businesses.

Behind the creditors' application for bankruptcy reorganization of the subsidiary is the huge debt pressure of Evergrande Auto. Evergrande Auto's 2023 annual report shows that its revenue is 1.34 billion yuan, a year-on-year increase of 900.04%; its gross loss is 51 million yuan;The total net loss was 11.995 billion yuan.The loss was reduced by 56.64% year-on-year, of which,The discontinued operations (i.e. divested real estate projects) incurred a loss of RMB 1.061 billion, bringing the loss for the year to RMB 11.995 billion.

As of December 31, 2023, Evergrande Auto's total assets were 34.851 billion yuan; total liabilities were 72.543 billion yuan, of which loans were 26.484 billion yuan, an increase of 498 million yuan year-on-year. During the same period, Evergrande Auto's cash and cash equivalents were 129 million yuan.Not nearly enough to cover the borrowing.

Currently, Evergrande Auto is planning to introduce potential third-party investors to resolve its debt crisis.

But two months have passed, and Evergrande Auto's "white knight" has not yet appeared. On July 26, Evergrande Auto's Hong Kong Stock Exchange announced that discussions between the potential seller, potential buyer and the company are still ongoing, but the potential seller and potential buyer have not yet entered into a sales and purchase agreement, and the potential buyer and the company have not yet entered into a credit agreement. The company and/or potential buyer will make further announcements at an appropriate time or when it is necessary to comply with the listing rules and/or the takeover code (as the case may be).

Looking back at the previous announcement, Evergrande Auto issued an announcement on the evening of May 26, stating that the company's 3.145 billion shares for potential sale (accounting for approximately 29.0% of all issued shares) will be acquired immediately, and 3.203 billion shares for potential sale (accounting for approximately 29.5% of all issued shares) will become the subject of an option exercisable by the potential buyer within a certain period after the date of the sales and purchase agreement.

Evergrande Auto announced that the potential buyer will provide the company with a credit line to finance the group's continued operation and development of the group's electric vehicle business. At that time, Evergrande Auto said that the group was seriously short of funds and the group's Tianjin factory had not been in production since the beginning of this year.

Evergrande Auto had attracted attention from the capital market because of the potential buyer's acquisition of 29% of the company's issued shares, and the news also caused the stock price to rise by more than 60% in a single day.

In addition to debt risks, Evergrande Auto also faces a number of pressures, including returning government subsidies, being ordered to stop selling new energy vehicles, etc.

Evergrande Auto announced on the evening of May 22 that its subsidiaries had received letters from relevant local administrative departments. Due to failure to perform contractual obligations in accordance with relevant agreements, Evergrande Auto's subsidiaries were required to terminate the agreement and return the rewards and subsidies issued, totaling approximately RMB 1.9 billion, and were required to bear joint and several liability. At that time, Evergrande Auto said it planned to write to relevant local administrative departments for coordination.

On June 11, Evergrande Auto announced on the Hong Kong Stock Exchange that relevant subsidiaries had recently received further administrative processing decisions issued by relevant local administrative departments.

The announcement stated that the relevant local administrative departments believed that the relevant subsidiaries had breached the contract because they had failed to perform their contractual obligations in accordance with the terms of the relevant agreements (mainly including failure to complete the establishment of the group headquarters, global R&D center and global production base in the areas under the jurisdiction of the relevant local administrative departments within the agreed time limit, the investment scale, planned production capacity and annual sales target; failure to build the production base and R&D center and put it into production and complete the research and development of new energy vehicle models on time), and that the purpose of the relevant agreements could not be achieved objectively judging from the operating conditions of the relevant subsidiaries. Therefore, the following handling decisions were made in accordance with the provisions of relevant laws and regulations: (1) to terminate three of the relevant agreements; and (2) the relevant subsidiaries shall return to the relevant local administrative departments within 15 days from the date of receipt of the administrative decision letter the various rewards and subsidies issued totaling approximately RMB1.9 billion.

The announcement also stated that if the above-mentioned handling decision is finally implemented, it will lead to the risk that the relevant factory land of the Group will be forcibly reclaimed and the above-ground buildings and equipment will be used to repay incentives and subsidies, which will in turn have a significant impact on the financial condition and operations of the Company or its related subsidiaries.

In addition, the announcement shows that the company's subsidiary, Evergrande New Energy Vehicle (Tianjin) Co., Ltd., recently received a notice from another relevant department. After checking the maintenance of Tianjin Evergrande's new energy passenger vehicle production access conditions, the department proposed three issues that need to be rectified, and planned to order Tianjin Evergrande to stop the production and sales of new energy passenger vehicle products and make rectifications.

In addition, on July 9, Evergrande Auto announced that it would remove Liu Yongzhuo and Qin Liyong from their positions as executive directors and any positions they held in the company, and appoint Cai Weikang as the company's executive director, effective immediately. On January 8 this year, Evergrande Auto issued an announcement on the Hong Kong Stock Exchange stating thatThe company's executive director Liu Yongzhuo has been criminally detained in accordance with the law on suspicion of illegal activities.

By the end of 2023, Evergrande Auto will have produced 1,700 vehiclesHengchi 5, with a total of 1,389 vehicles delivered. As of the close of July 26, Evergrande Auto's share price was HK$0.335 per share, with a closing increase of 3.08%.

Disclaimer: The content and data of this article are for reference only and do not constitute investment advice. Investors who act accordingly shall bear their own risks.

edit|Cheng Peng Yi Qijiang

Proofreading|Liu Siqi

Cover image source: Visual China (data map)

(Guangzhou Nansha Evergrande Auto (Hengchi) production base. Photographed in January 2021)

Daily Economic News compiled from company announcements, China Securities Journal, Securities Times e-company

Daily Economic News