Evergrande Auto resumes trading on May 26, intends to sell 29% of its shares

After being suspended for 5 trading days, on the evening of May 26, Evergrande Auto (00708.HK) issued an announcement stating that the liquidator of China Evergrande (03333.HK), Evergrande Health Industry Group Co., Ltd., Acelin Global Limited and other parties have signed a term sheet with a third-party buyer to sell their shares in Evergrande Auto.

According to the above-mentioned term sheet, the buyer and seller will further sign a final sale and purchase agreement for the sale. It is disclosed that China Evergrande holds a total of approximately 6.347 billion shares of Evergrande Auto, accounting for approximately 58.5% of the latter’s total issued shares, all of which will be put on the shelf.

The announcement stated that after the signing of the sale and purchase agreement and subject to its terms and conditions, it is planned that 3.14 billion potential shares to be sold will be acquired in real time, which is approximately 29% of Evergrande Auto’s issued shares; another approximately 3.203 billion potential shares to be sold, or the remaining approximately 29.5%, will become the subject of an option that the buyer can exercise within a certain period after the date of the sale and purchase agreement.

According to Evergrande Auto’s 2023 financial report, China Evergrande holds a total of 6,347,948,000 shares of Evergrande Auto, accounting for approximately 58.54% of the shares. This also means that after the completion of the above transaction, China Evergrande will no longer hold shares in Evergrande Auto.

As early as January 29 this year, the Hong Kong court issued a winding-up order to China Evergrande. On the same day, China Evergrande made an announcement and disclosed that Edward Simon Middleton and Huang Yongshi of A&M Consulting Co., Ltd. were appointed by the High Court as joint and several liquidators of China Evergrande.

Huang Lichong, president of Huisheng International Capital, once told China Business News that once the court is satisfied that one of the requirements contained in Section 177 (1) of the Companies Winding-up Ordinance (including the company’s inability to repay its debts) has been met, it can issue a winding-up order against the company. During the compulsory liquidation, the power of the company’s directors will be suspended, and the liquidator supervised by the court will be responsible for recovering and realizing the company’s assets, investigating the company’s affairs, adjudicating the claims of creditors, and distributing to creditors from the liquidated property.

At present, the above-mentioned equity sale of Evergrande Auto is being promoted under the guidance of this liquidation order. Due to the liquidation order and the appointment of the liquidator, the debt restructuring plan promoted by China Evergrande will not be carried out in the previous way, and the debt restructuring application filed with the US court has been withdrawn. At the same time, the joint and individual liquidators of China Evergrande are focused on fulfilling their duties to preserve, maximize and return value for creditors and other stakeholders.

It is worth mentioning that Evergrande Auto will also obtain a credit agreement from this transaction. According to this, the buyer will provide Evergrande Auto with a credit line to finance Evergrande Auto’s continued operation and development of its electric vehicle business.

Evergrande Auto also emphasized that the above-mentioned share transfers and potential credits and other potential transactions are subject to further due diligence, including but not limited to proof of funds of potential buyers and due diligence on Evergrande Auto’s assets, liabilities, business, finance and legal matters. At the same time, Evergrande Auto’s shares will resume trading at 9:00 a.m. on May 27.

Evergrande Auto also made it clear that the group is currently in serious financial shortage. The Tianjin plant has not been in production since the beginning of this year and has not resumed production as of the announcement date.

The Tianjin plant is also one of Evergrande Auto’s important automobile production bases. As of the end of 2023, the Tianjin manufacturing base produced Hengchi 5 according to market demand, mass production in September 2022, and a total of 1,700 vehicles were produced and rolled off the assembly line, which did not meet the relevant requirements. As of the end of 2023, a total of more than 1,389 vehicles were delivered.