Evergrande’s ‘cash-burning’ EV unit at risk of hiatus in developer’s restructuring to defer US$19.15 billion of offshore debt
- EV unit ‘at risk of discontinuing production’, because of its inability to obtain additional liquidity
- Evergrande’s debt overhaul plan is expected to provide pointers on restructuring efforts to other Chinese developers
The warning comes after its parent firm, China Evergrande Group, unveiled a restructuring plan late on Wednesday night that includes proposals to swap its creditors’ debt with shares of some of its Hong Kong-listed affiliates, such as Evergrande NEV.
“In [the] face of [its] inability to obtain additional liquidity, the group is at risk of discontinuing production,” the EV unit said in a filing to the Hong Kong stock exchange. It had laid off staff and improved its management efficiency to cut costs and support of the mass production of Hengchi 5, its flagship model, Evergrande New Energy Vehicle Group said, adding that it needed about 29 billion yuan (US$4.25 billion) to launch more cars and achieve mass production.
“The carmaker just did not expect how cash-burning the EV business is, and did not expect that it just would not be able to afford it,” said Kenny Ng, a strategist at Everbright Securities International in Hong Kong.
“You cannot say it is totally wrong, as [the EV business] was seen as a way of hedging policy risk in [the property industry] when the government started to tighten up the sector. But EVs are just too demanding in terms of the initial funding.”
