Evergrande's Electric Vehicle Unit Faces Bankruptcy, Dampening Sale Prospects
The China Evergrande New Energy Vehicle Group (CENEVG), an electric vehicle production arm of the embattled Chinese Evergrande Group, is facing bankruptcy proceedings, jeopardizing potential sale negotiations.
The initiation of bankruptcy proceedings by some units of CENEVG follows a court hearing on Friday where individual creditors of the heavily indebted company filed an application. This development throws a wrench into the sale process, which was already underway with discussions with anonymous buyers.
The bankruptcy proceedings highlight the challenges faced by Chinese property developers grappling with winding-up orders amidst a slumping real estate sector. While CENEVG had previously acknowledged discussions with potential buyers, no agreement had been reached.
Experts believe that any potential buyer would need to carefully handle the creditors of the domestic units, not just the offshore parent company. The mainland court could even initiate bankruptcy administration of the domestic units and introduce a strategic investor, potentially squeezing out the Hong Kong-listed New Energy Vehicle parent company entirely.
The situation echoes a similar scenario earlier in May, where liquidators for Evergrande Health Industry Holdings and Acelin Global, which hold a combined 58.5% of CENEVG's issued shares, entered negotiations with potential buyers. However, the proposal required the prospective buyer to provide credit to support the company's EV operations, which are currently suffering from a severe shortage of funds.
Evergrande, the property developer giant of China, holds more than 50% of the EV Group as of June 2022. Sources familiar with Evergrande's reconstruction believe that the liquidation of core assets could negatively impact investor confidence in moving forward with a deal for Evergrande New Energy.
Following the news of the bankruptcy proceedings, shares of Evergrande New Energy on the Hong Kong stock exchange tumbled by 7.94%. The Chinese real estate company, burdened with over USD 300 billion in liabilities, has only managed a "modest realization of assets" four months after the liquidation order.
The liquidators are also seeking to sell Evergrande Futures (Hong Kong) and Evergrande Securities (Hong Kong), which have a share capital of 15 million Hong Kong dollars (USD 1.9 million) and HKD 365 million, respectively.
Evergrande's previous attempt to sell 27.5% of the EV group's shares for HKD 3.88 billion to NWTN, a Nasdaq-listed company, failed to materialize. The ongoing real estate crisis in China continues to pose challenges for offshore creditors of property developers under winding-up orders, making asset recovery a difficult task.