The new energy vehicle market in 2024 is so lively, especially after the launch of the Xiaomi SU7, the price war in the entire automobile market is very fierce. On the occasion of the "collective carnival" of new energy vehicles, Evergrande Automobile (00708. HK) is in a dilemma.
On the evening of April 5, Evergrande Automobile announced that the company's previously proposed transaction and the revision of the terms of the debt-to-equity swap have not made any further progress. Evergrande Auto said it would not convene a general meeting of shareholders to approve and would not issue any information relating to, among other things, the special mandate, the Newton Group (NWTN.US) share subscription agreement, the proposed transaction, the whitewash waiver, the proposed amendments, the debt-for-equity swap subscription agreement, the set-off agreement and the debt-for-equity swap circular.
In short, the company's planned strategic investment from Newton Group was terminated, and the money that was thought to save Evergrande at the time was in vain.
The Middle Eastern tyrants really quit
In fact, Newton Group's investment in Evergrande Automobile was exposed as early as the end of last year.
On October 8, 2023, Evergrande Automobile announced that due to the loss of China Evergrande (03333. HK), strategic investor Newton Group suspended its transition funding support for the company and renegotiated the adjustments required for the proposed transaction.
According to the announcement at that time, Newton Group put forward two requirements for Evergrande Automobile to further promote the transaction, including: the debt restructuring plan of Evergrande Group involved in the share subscription agreement needs to be readjusted, and there are plans to launch a new restructuring plan; China Evergrande, Evergrande Automobile, creditors and related parties are willing to renegotiate the adjustments required by the proposed transaction plan under the premise that the new restructuring plan is clear.
Two months later (December 15, 2023), China Evergrande announced that the term of the restructuring support agreement signed by the company on April 3, 2023 had expired on December 15, 2023 and had not been extended. The Company and its advisors will continue to engage in discussions with various stakeholders of the Company with a view to reaching an agreement on the overall restructuring of the Company's offshore debt. The Company will make a separate announcement on the progress of the proposed restructuring in due course.
Obviously, if China Evergrande's debt restructuring fails, it will lead to the hopelessness of cooperation between Newton Group and Evergrande Automobile.
On January 1, 2024, Evergrande Automobile announced again that the share subscription agreement and debt-to-equity swap subscription agreement between the company and Newton Group had officially expired on December 31, 2023, as the parties to the relevant agreement did not agree to extend the deadline.
Evergrande Auto disclosed in the announcement that the parties to the Newton Group Share Subscription Agreement and the Debt-to-Equity Swap Subscription Agreement, as well as certain interested parties, have been and will continue to negotiate on amending certain key terms of the proposed transaction and the debt-to-equity swap. At the same time, the Company will make monthly announcements until it announces its exact intention to proceed with the proposed transaction and debt-for-equity swap or decides not to proceed with the proposed transaction and debt-for-equity swap.
In other words, although the war investment agreement is invalid, there is still hope for cooperation between the two sides. Investors don't seem to be buying it, though. After the opening of Hong Kong stocks on January 2, Evergrande Automobile fell by more than 11%, and once fell to 18.63% intraday, and began to pull back in the afternoon. As of the close of the day, the company's share price was HK$0.45, down 11.76%.
And as time went on, Evergrande Auto's share price deteriorated. As of April 5, the company's latest quotation has fallen to HK$0.249, a decrease of more than 44.67% from the beginning of the year, and if it is compared with HK$2.5 after the official announcement of the cooperation between the two parties on August 15, 2023, it has shrunk by more than 90%.
Tracing back to the origin of Evergrande Automobile and Newton Group, it can be traced back to August 14 last year.
At that time, Newton Group and Evergrande Automobile successively announced that the two parties would sign a share subscription agreement with an investment amount of up to US$500 million, and another 600 million yuan of transitional funds would be received from 5 working days after the announcement, and the proposed transaction between the two parties would be completed in the fourth quarter of 2023. Upon completion of the transaction, Newton Group's shareholding in Evergrande Automobile will account for 27.5% of the total issued and outstanding ordinary shares of the enlarged company.
At the same time, Evergrande Automobile also pointed out in the announcement that all the war investment funds will be used for Evergrande Automobile Tianjin Plant to ensure the normal production of Hengchi 5 and the mass production of Hengchi 6 and 7. In addition, if the debt-to-equity swap is completed, China Evergrande's shareholding in Evergrande Automobile will be diluted to approximately 46.86%, Evergrande Automobile will no longer be a non-wholly-owned subsidiary of China Evergrande, and its financial results will no longer be consolidated in the results of China Evergrande.
However, with the continuous exposure of negative news from Evergrande Group and Xu Jiayin, the process of China Evergrande's US dollar debt restructuring was interrupted, which in turn led to the inability of Evergrande Auto to meet the preconditions of the transaction, resulting in Newton Group suspending the relevant obligations in the share subscription agreement on September 28, 2023. Prior to this, Newton Group only provided 200 million yuan of transitional funds to Evergrande Automobile.
In this regard, Bai Wenxi, chief economist of IPG China, pointed out to Titanium Media APP: "The news of the termination of Newton Group's strategic investment announced by Evergrande Automobile is undoubtedly important news for the company itself and investors who are concerned about its development. ”
In terms of financing difficulties, Bai Wenxi said that the termination of this strategic investment may mean that Evergrande Automobile has encountered certain difficulties in financing. In the current economic environment, investors are more cautious about investment decisions, especially for companies with tight capital chains and prominent debt problems. As a subsidiary of Evergrande Group, Evergrande Automobile has become more difficult to obtain external financial support in the context of the group's overall tight liquidity.
At the same time, there are many uncertainties in debt restructuring, corporate strategy, market confidence and stock price fluctuations, future development, etc., and the challenges faced by Evergrande Auto need to be solved through multi-faceted efforts. In Bai's view, Evergrande Auto needs to continue to communicate with creditors, investors and regulators to find feasible solutions to its capital and debt problems, and also needs to adhere to technological innovation and market expansion to achieve long-term sustainable development.
The loss of car manufacturing in four years exceeded 110 billion yuan
Under the poor progress of strategic investment, Evergrande Automobile's own operation is not optimistic.
On March 27, Evergrande Auto disclosed its 2023 annual report. During the reporting period, the company achieved revenue of about 1.34 billion yuan, an increase of 900.04% year-on-year, a gross loss of 51 million yuan, and a total net loss of about 11.995 billion yuan, a year-on-year decrease of 56.64%, including a loss of 1.061 billion yuan from the discontinued business (i.e., divestment of real estate projects), a non-operating loss of 6.384 billion yuan from asset disposal and asset impairment, and an operating loss of 4.55 billion yuan.
At the same time, as of the end of 2023, Evergrande Automobile's total assets are about 34.851 billion yuan, total liabilities are about 72.543 billion yuan, among the liabilities are 26.484 billion yuan of borrowings, 43.012 billion yuan of trade and other payables, and 3.047 billion yuan of other liabilities. Among them, cash and cash equivalents were only 129 million yuan.
Evergrande Automobile said in the announcement that by the end of 2023, the Tianjin manufacturing base will produce the Hengchi 5 according to market demand, and mass production will be carried out in September 2022, with a total of 1,700 vehicles off the assembly line, which does not meet the relevant requirements. By the end of 2023, more than 1,389 units of the Hengchi 5 had been delivered. However, due to the company's recent financial reasons, Evergrande Automobile has arranged for some personnel to take vacations, and the Tianjin plant has also suspended production.
It is worth noting that since the announcement of car manufacturing in 2019, as of December 31, 2023, Evergrande Automobile's cumulative losses and shareholder losses were 110.841 billion yuan and 37.693 billion yuan, respectively, compared with 98.906 billion yuan and 68.651 billion yuan in 2022.
Compared with its peers, NIO has only lost 92.1 billion yuan in eight years, including $2.2 billion from U.S. stock financing and $2.2 billion from the Abu Dhabi Investment Authority, and its monthly sales have slowly stabilized at more than 15,000 units.
A large part of the reason why Evergrande Automobile's losses are so high is that the company did not use the money for automobile production, but used it to buy land and build an automobile city, but with the decline of the real estate industry, Evergrande Automobile's money invested in it could not be recovered, resulting in a bigger and bigger hole in the books.
Some industry insiders pointed out that the reasons for Evergrande's failure to build cars can be found from many aspects. First of all, Evergrande Automobile technology is too backward, the company has almost no original technology, all of which are old technologies acquired through early acquisitions, but at present, the technology of new energy vehicles is updated and iterated rapidly, and the technology that Evergrande Automobile bought before has long been outdated. Secondly, Evergrande Automobile's funds are insufficient, and its Hengchi 5 has long been discontinued, and it cannot be produced even if there are orders. Third, the current domestic new energy vehicle industry is fiercely competitive, not only domestic brands but also international brands, everyone wants to get a piece of the pie, resulting in almost no living space for Evergrande Automobile.
"With the entry of Xiaomi cars, the competition in the entire domestic auto market will be more intense, not only will there be price competition, but also the competition at the technical level will continue to intensify. The above-mentioned industry insiders concluded. (This article was first published on the Titanium Media APP, author: Chen Weina)