Evergrande Liquidators in Talks With Potential Buyer of Electric Car Unit

Liquidators for China Evergrande have lined up a prospective buyer for the bankrupt developer’s majority stake in its struggling electric car division.

The liquidators entered a non-binding agreement to sell China Evergrande’s 58.5 percent equity interest in Hong Kong-listed Evergrande NEV for an undisclosed price, according to a Sunday stock filing. Under the terms of the agreement, the unidentified buyer would purchase an initial 29 percent stake and retain the option to acquire the remaining 29.5 percent during a specified period after the deal is finalised.

The buyer would also provide a line of credit to Evergrande NEV to finance the continuing operation and development of the electric car business, which is “in severe shortage of funds”.

“The Tianjin factory of the group has ceased production since the beginning of this year,” Evergrande NEV chairman Shawn Siu said in the filing. “As at the date of this announcement, the Tianjin factory of the group has not resumed production.”

Local Government Pressure

The potential lifeline comes after Evergrande NEV revealed last week that local administrative authorities were demanding the return of RMB 1.9 billion ($260 million) in incentives and subsidies lavished on the automaker, which had produced a mere 1,700 cars at the Tianjin factory by the end of 2023.

Evergrande NEV intends to coordinate with the local officials on their demands, which if implemented could have a “material adverse impact” on the company’s financial position and operations, said Siu, who also serves as the Shenzhen-based parent group’s CEO.

Debt-saddled China Evergrande, which is under liquidation after being ordered to wind up by Hong Kong’s High Court in January, has contemplated the sale of the loss-making automotive unit since at least August 2021 — back when Evergrande NEV had yet to sell a single car. A plan to sell a 27.5 percent stake to NASDAQ-listed NWTN for $500 million collapsed earlier this year in a dispute over the deal’s finer points.

Evergrande NEV’s HKEX-listed shares resumed trading Monday morning for the first time since a 17 May halt and shot up more than 80 percent on news of the pending share sale.

Postponed Results

China Evergrande late last month announced a delay in releasing its 2023 financial results, stating that the liquidators were “taking steps to ascertain the current state of affairs” at the property giant, which is working through debts totalling $329 billion.

Hong Kong regulators last month opened an investigation into PricewaterhouseCoopers and its relationship with China Evergrande, with the inquiry coming on the heels of reports that mainland authorities were probing PwC’s role in dodgy bookkeeping at the developer. In March, mainland regulators slapped founder and former chairman Xu Jiayin with a lifetime ban from the country’s securities market for inflating the group’s results in 2019 and 2020.

PwC resigned as China Evergrande’s auditor in January 2023, citing the company’s failure to provide information related to its then still-unreleased 2021 financial results. The liquidators are reportedly considering a lawsuit against PwC on grounds of negligence.

The Financial Times reported last week that PwC partners were bracing for what they expect to be one of the largest fines ever imposed on a Big Four accounting firm in China. The crisis has prompted infighting among senior figures, the newspaper said, citing insiders and retired partners still close to the firm.