Evergrande Auto Seeks $4.2B to Avoid Production Halt
On March 22, Evergrande, a property developer that has been at the center of China’s property sector crisis, issued a warning stating that its electric vehicle division may need to suspend production if it fails to secure new financing.
According to the announcement, the Hengchi 5, the EV maker’s first flagship model, was officially put into mass production on September 16, 2022, and the first batch of vehicles was delivered on October 29, 2022. As of March 22, over 900 vehicles have been sold.
The EV manufacturing unit has announced that it aimed to reduce costs by implementing measures including reducing staff and improving management efficiency. As of March 2023, the unit has a total of 2,795 employees, compared with 3,742 employees as of June 30, 2022.
However, if the EV manufacturing unit manages to secure financing of at least 29 billion yuan ($4.2 billion), the company has plans to launch and mass produce multiple new flagship models. Under this plan, the cumulative unleveraged cash flow from 2023 to 2026 is expected to reach between negative seven billion yuan ($1.02 billion) and negative five billion yuan ($730 million).
Evergrande’s EV division is not the only one facing a crisis. According to a report by Electrive, National Electric Vehicle Sweden (NEVS), a Swedish electric car subsidiary of Evergrande, is laying off 320 of its 340 employees. In a statement, NEVS refers to the measure as a “hibernation” and is taking steps to reduce costs, pay off supplier debts, and prevent insolvency.
In addition, Evergrande has announced plans for the restructuring of its $22.7 billion offshore debt. The company is presenting holders of its offshore debt with a number of options. One of the options enables creditors to replace existing debt with new bonds that have an extended maturity of ten to 12 years, or with new notes that have a tenor of five to nine years. Another option is for creditors to swap offshore debt for instruments that will be converted into shares of Hong Kong-listed Evergrande Property Services, Evergrande New Energy Vehicle Group, or Evergrande itself.
“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on-shore,” Evergrande noted in the filing.
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In 2022, Evergrande delivered a total of approximately 301,000 housing units. As of the end of February 2023, the company had completed the delivery of 421,000 housing units, covering a construction area of 48.82 million square meters across 515 projects.
Evergrande has announced that it will require additional financing of 250 billion yuan ($36 billion) to 300 billion yuan ($43 billion) for its business as it resumes operations over the next three years. Provided that the company is able to resume normal operations and continue to develop projects starting from the fourth year, the company’s unleveraged free cash flow is expected to gradually increase to approximately 110 billion yuan ($16 billion) to 150 billion yuan ($21 billion) from 2026 to 2036.