Will $500 Million From “Middle Eastern Tycoon” Save China Evergrande NEV?

Credit: Visual China

BEIJING, August 16 (TiPost) - On the road to car manufacturing, Hui Ka Yan and Jia Yueting have unusual encounters.

In November 2017, Hui became the “white knight” for Jia and invested $800 million in Faraday Future (FF). Six months later, the two parties had disagreement and finally reached a settlement, with Evergrande Health acquiring 32% of FF’s shares with its $800 million investments.

In 2023, Hui, who was in trouble, welcomed his own “white knight.” On Monday, Newton Group (NWTN), headquartered in Dubai, United Arab Emirates, invested $500 million in China Evergrande New Energy Vehicle Group (NEV), and got a 27.5% of the latter.

NWTN was formerly a car manufacturing company called ICONIQ Motors, based in Tianjin, China, which also had a connection with FF. In April 2019, Bi Fukang, the co-founder of Byton, became the CEO of ICONIQ Motors. Five months later, Bi succeeded Jia as the global CEO of FF.

Interestingly, FF, Byton, Evergrande, and ICONIQ have all been questioned for failing to turn plans into real products and have not yet been able to establish themselves with mass-produced and popular models.

This time, NWTN comes to the aid of China Evergrande NEV. Can they work together to create a car recognized by the market?

Abundant Information Enclosed in Transaction Details

China Evergrande NEV announced on Monday evening that as part of the debt restructuring of China Evergrande Group and to reduce the debt level of China Evergrande NEV, the total amount of over HKD 20.8 billion ($2.7 billion) of related loans will be converted into new shares at a conversion price of HKD 3.84 ($0.49) per share. At the same time, the company has obtained a strategic investment of approximately $500 million from NWTN Group. In addition, a transitional fund of RMB 600 million ($82 million) will be received in installments starting from five working days after the announcement. All investment funds will be used for China Evergrande NEV’s Tianjin factory to ensure the normal production of Hengchi 5 and the subsequent mass production of Hengchi 6 and 7.

1. Transaction Price: NWTN’s subscription price is discounted by 62.96% from the closing price of China Evergrande NEV.

The announcement shows that China Evergrande New Energy Vehicle Group Co., Ltd. has recently initiated a private placement, aiming to use new shares to offset the shareholder loans previously provided by China Evergrande Group and other related creditors to China Evergrande NEV.

Specifically, China Evergrande NEV issued approximately 4.18 billion shares, 521 million shares, 169 million shares, 417 million shares, and 156 million shares to China Evergrande Group, Xin Xin (BVI) Limited (owned by Hui), Hui, Hui’s wife Ding Yumei and Qualibond Technology Co., Ltd. (owned by Ding), respectively, totaling approximately 5.44 billion shares of Evergrande NEV.

NWTN participated in the new share subscription as a new strategic investor. Evergrande NEV gave it an extremely favorable subscription price of HKD 0.6297 ($0.08) per share, which is a discount of 62.96% from the closing price of Evergrande NEV on Monday, which was HKD 1.7($0.22) per share.

2. Ownership Percentage: NWTN becomes the largest shareholder of Evergrande NEV with a $500 million investment.

According to the disclosure of Evergrande NEV, after the implementation of the debt-to-equity swaps of Evergrande Group, Xu, Ding, and others, as well as the mandatory convertible debt issued to creditors in the Evergrande debt restructuring plan, the latest shareholding structure of Evergrande NEV is as follows:

NWTN Group, holding 27.50%;

Evergrande Group, holding 21.75%;

Evergrande Group’s creditors, holding 28.18%;

Other public shareholders, holding 19.98%.

The creditors of Evergrande Group are dispersed and do not constitute a concerted action group. In other words, NWTN Group will spend HKD 3.89 billion (equivalent to approximately $500 million) to become the single largest shareholder of Evergrande Group.

In addition, if NWTN Group’s investment is successful, it will have 5 director seats, with the group itself being able to nominate 3 directors, and designate one of them as the chairman of the board.

Who is NWTN Group?

NWTN Group is an electric vehicle company headquartered in Dubai, United Arab Emirates, founded by Chinese entrepreneur Alan Nan Wu. As of the end of 2022, the company held approximately $211.9 million in cash and cash equivalents.

NWTN’s predecessor was actually a company in Tianjin, China called ICONIQ. According to previous public reports, ICONIQ was established as a new energy vehicle company in China in 2014 and entered the public’s view in 2016. In July 2019, it acquired Tianjin Tianqi Meiya Automobile Manufactory Co., Ltd. for nearly RMB 870 million ($119.29 million), obtaining domestic NEV mobile production qualifications, and disappeared from the public’s view after obtaining the qualification to manufacture cars in 2019.

In April 2022, East Stone Acquisition Corporation, a Nasdaq-listed Special Purpose Acquisition Company, announced a formal business merger agreement with NWTN, with a pre-merger valuation of $2.5 billion.

By the end of July of that year, NWTN had already reached PIPE investment subscription agreements with Jinhua State-owned Capital Operation Co., Ltd. and the Office of the Crown Prince of the UAE, with a total investment amount of $600 million.

On October 24, 2022, NWTN and East Stone submitted the final merger proxy statement to the U.S. Securities and Exchange Commission (SEC) and completed the business merger with NWTN, thus achieving a backdoor listing. However, on the first day of listing, the company’s stock price experienced a significant drop of up to 63%. Currently, the company’s total market value is less than $3 billion.

That is to say, although this company claims to be a mobile and green energy company headquartered in Dubai, UAE, its founder and most of its executives are from China. The founder and CEO of the NWTN Group is Alan Wu and the CTO is Howard Yu. As of May 23, 2023, Wu Nan holds 77% of the voting rights of NWTN Motors.

In addition to financing and going public, NWTN has also launched the Jinhua Project: building a new energy vehicle project in Jinhua, Zhejiang, with a total investment of 10 billion yuan, designed to produce 100,000 intelligent passenger vehicles per year, and plans to start production in 2024.

NWTN has established an electric vehicle assembly plant in Abu Dhabi, UAE, in the form of leasing-KEZAD assembly plant. As of December 2022, this KEZAD assembly plant has delivered a total of 20 range-extended electric vehicles (“R-EEV”).

In addition, NWTN plans to jointly develop a high-end supercar called Supersport with W Motors, as well as create a more affordable compact SUV-ADA. As these are still in the planning stage, they have not been implemented yet.

Therefore, NWTN’s financial reports for the past three years show that the group’s revenue was zero in 2020, 2021, and 2022, with net losses of $12.65 million, $13.06 million, and $41.25 million, respectively.

As of December 31, 2022, NWTN held approximately $211.9 million in cash and cash equivalents, with restricted cash of $146,000. As of the end of 2022, the group’s total liabilities were $71.97 million.

From NWTN’s 2022 financial report data, it can be seen that the group’s own funds are not enough to support its $500 million investment in Evergrande NEV. There are still doubts in the market about where the investment funds come from.

NWTN’s predecessor ICONIQ and FF have both been questioned for “PPT” car manufacturing, meaning that they often fail to manufacture cars as they plan. These two companies also have personnel connections.

In 2019, ICONIQ obtained domestic NEV mobile production qualifications and hired Bi, a co-founder of Byton, as CEO. However, just 4 months later, Bi resigned and joined Jia’s company FF.

As the founder of FF, Jia has been raising funds for the company, not through traditional bank loans, but through issuing equity and debt-to-equity swaps to obtain funds. Previously, after Jia personally filed for bankruptcy, FF Motors, with Dr. Bi as CEO, continued to raise funds for “car manufacturing” through reverse mergers and successfully raised another $1 billion.

Evergrande NEV: Inslovent

According to the financial reports released by Evergrande NEV for the year 2022, the company suffered a loss of 27.66 billion yuan (compared with 56.34 billion yuan in 2021), with a combined loss of 84.01 billion yuan over the two years. As of December 31, 2022, the company’s cash and cash equivalents amounted to 220 million yuan.

In terms of debt, Evergrande NEV’s total liabilities in the 2022 financial report amounted to 183.87 billion yuan. After excluding the prepaid accounts of 3.31 billion yuan, the remaining debt was 180.59 billion yuan. As of December 31, 2022, the group had accumulated approximately 11.63 billion yuan of overdue debt and approximately 18.51 billion yuan of overdue commercial bills, while the total assets of Evergrande NEV were 115.22 billion yuan, indicating insolvency. (1 yuan = $0.14)

The announcement stated that the above situation indicates that Evergrande NEV will need to obtain a large amount of funds in the foreseeable future to provide funds for financial obligations and capital expenditures under various contracts and arrangements.

Currently, Evergrande NEV’s business is still in a precarious situation. The Tianjin factory resumed full production on May 23, so the production of Hengchi 5 continued. However, its sales have still not improved, with the latest cumulative deliveries exceeding only 1,000 units.