Evergrande Weighs Sale of Stake in Auto Unit After $740M H1 Loss

After China Evergrande New Energy Vehicle Group issued a warning this week that its first-half net loss was expected to nearly double from a year earlier, the car maker’s parent firm — debt-saddled developer China Evergrande — has confirmed that it is in talks to sell stakes in the automotive unit and other subsidiaries.

The board of the Hong Kong-listed automotive firm, which has yet to sell a car, anticipates a net loss for the six months to June of RMB 4.8 billion (now $740 million), widening from a RMB 2.45 billion loss in the same period of 2020.

The first-half loss is “primarily attributable to the development of the new energy vehicle business, which is in its early investment stage and resulted in an increase in research and development and other related costs, and interest payments”, Evergrande NEV chairman Shawn Siu said in a Monday filing with the Hong Kong stock exchange.

In a statement on “unusual price and trading volume movements” released Tuesday, China Evergrande chairman Xu Jiayin sought to clear up what he termed “confusing news” about the company. He said Evergrande was in discussions with third-party investors on the sale of certain assets, including interests in Evergrande NEV and property manager Evergrande Property Services Group Ltd.

News Boosts Valuation

Reuters had reported Monday that Evergrande was in talks with state-owned and private companies to sell stakes in its electric vehicle and property management businesses, citing a source close to the matter. The source said talks on the potential stake sales were “advancing smoothly”.

The Shenzhen-based developer is also seeking buyers for the bulk of its urban renewal projects in its home city, sources told Reuters.

The Hong Kong-listed shares of Evergrande and the two subsidiaries have surged since the prospect of fresh stakeholders came to light, with all three stocks up more than 10 percent in Wednesday’s early session.

By Wednesday afternoon, the two-day rally had added HK$12 billion ($1.54 billion) to the developer’s market capitalisation, bringing the total to HK$84.09 billion. Meanwhile, Evergrande NEV’s market cap climbed HK$24 billion to HK$143.21 billion and Evergrande Property Services’ shot up HK$21 billion to HK$81.51 billion.

Righting the Ship

The stock recovery is welcome relief for Evergrande and the two subsidiaries, which collectively had shed more than HK$308 billion in market cap in the year through Monday, the South China Morning Post reported.

The cash-strapped developer’s travails have dominated the headlines in recent weeks, including credit downgrades by S&P and Moody’s and a series of asset sales in a bid to raise funds.

Evergrande continues to reduce its shareholding in its Hong Kong-listed internet division, HengTen Networks Group, as it announced plans earlier this month to offload a HK$3.25 billion ($420 million) stake. That came less than two months after the company sold a $570 million stake in HengTen, a mainland joint venture formed by Evergrande and internet giant Tencent in 2015.

Aside from the HengTen stake sales, Evergrande in June sold a nearly $400 million interest in smaller developer Calxon. Also that month, the group made a show of repaying a $1.47 billion offshore bond a week ahead of its due date as a sign of commitment to taming its balance sheet.