Cash runs low at Evergrande’s electric vehicle business

China Evergrande’s electric-vehicle unit warns it is facing a ‘serious shortage of funds’, adding to the heavily indebted parent company’ woes.

Shares in Evergrande Auto are down 94 per cent. Above, Evergrande Auto’s Hengchi 9 electric vehicle at the Auto Shanghai 2021 show in Shanghai. Picture: Bloomberg

China Evergrande’s once-high-flying electric-vehicle unit warned it was facing a “serious shortage of funds” and might not be able to meet its obligations, adding to the challenges facing its heavily indebted parent company.

In a filing late on Friday in Hong Kong, China Evergrande New Energy Vehicle Group, or Evergrande Auto, also said that it had stopped paying some operating expenses, and that some companies had stopped providing it with supplies. The EV maker said there hadn’t been material progress on restarting projects that had previously stalled because of payment delays.

Evergrande Auto said it was still talking to new investors about potentially investing in the group, and was negotiating about selling some projects and assets in China and abroad. But it warned that if it couldn’t strike a deal soon, it would struggle to pay salaries and other expenses.

“In view of the difficulties, challenges and uncertainties in improving its liquidity as mentioned above, there is no guarantee that the group will be able to meet its financial obligations under the relevant contracts,” Evergrande Auto said.

In a separate filing on Sunday, the company said it had scrapped plans to sell shares onshore in China, and to list in Shanghai on the tech-focused STAR Market. In early trading on Monday in Hong Kong, Evergrande Auto’s stock fell 25 per cent.

China Evergrande chairman Hui Ka Yan had set out to overtake Tesla, local rival NIO and other big players to build the world’s largest and most powerful EV maker by 2025. For a while, investors bought into the vision, with Evergrande Auto’s market capitalisation hitting $US87bn ($120bn) earlier this year. But the stock has since crashed, and as of Monday in Hong Kong was down about 94 per cent so far this year.

The parent company, Shenzhen-based Evergrande, is the world’s most indebted property developer and China’s largest issuer of junk debt, with around $US19bn of publicly traded dollar bonds outstanding. Prices of those bonds have fallen far below face value, reflecting pessimism about Evergrande’s ability to repay its debts.

Investors who own some of the dollar bonds hadn’t received an interest payment from the property giant by Thursday’s deadline. If Evergrande doesn’t pay within a 30-day grace period, that would set the stage for what could be the largest-ever dollar-bond default by a company in Asia.

Evergrande has sought to raise cash by selling shares in Evergrande Auto and other subsidiaries, as well as by selling its Hong Kong office building. In May, Evergrande sold a 2.66 per cent stake in the EV unit for the equivalent of about $US1.36bn, trimming its holding to just under 65 per cent.

In Evergrande Auto’s first-half results in August, its board believed it had enough working capital to meet financial obligations over the coming 12 months. Evergrande Auto also operates various healthcare businesses.