Evergrande to buy property projects off its EV unit to sweeten US$19 billion debt restructuring plan

Embattled China Evergrande Group will take over residential and property projects of its new energy vehicle (NEV) unit for just 2 yuan (US$0.29) as it seeks to make the carmaker attractive to offshore creditors days before a deadline to accept a restructuring of its US$19 billion offshore debt.

The group’s car making arm, China Evergrande New Energy Vehicle Group (Evergrande NEV), will sell 47 of its health and living projects to Evergrande to “focus on the NEV segment and deploy appropriate resources towards the research, development and production of NEVs”, it said in a filing on Monday evening. The group has defaulted on some US$20 billion of offshore debt and is soliciting bondholder support for a debt restructuring proposal by April 27.

The NEV unit is a key part of Evergrande’s massive restructuring plan, as the developer offers offshore creditors an option to swap debts for shares of some of its affiliates, such as Evergrande NEV. But analysts doubt the transfer would sweeten the restructuring plan that requires consent from creditors holding at least 75 per cent of the debt value.

“Evergrande’s NEV announcement is a clear attempt to influence the Hengda bondholder vote, as the company’s offshore restructuring plans are largely dependent upon creditor acceptance of NEV shares,” said Brock Silvers, chief investment officer at Kaiyuan Capital who felt the reduction in NEV liabilities would be welcome but would do little to ameliorate investor concerns over NEV’s underlying value.

“A stronger EV focus won’t suddenly create enthusiasm for a new and unproven entrant under questionable management in a rapidly evolving tech sector that is both fiercely competitive and heavily capitalised. I still believe that offshore creditors should oppose the deal, and onshore creditors are in a stronger position and should be even less likely to agree. I don’t believe the NEV announcement will significantly alter this outlook.”

China Evergrande woes continue as it fails to deliver 2022 annual report on time Still, the group said late on Monday the latest transaction could optimise the carmaker’s structure, and improve its valuation by increased focus on the NEV business which would help make it attractive to investors and aid its fundraising plans.

“By deleveraging and reducing its holding of the projects, through better focus and specialisation in the NEV Segment, the board believes that the company can take the NEV segment to its next stage of growth,” Evergrande’s car making unit said in its announcement.

“The board also believes that the business growth in the NEV segment will allow the shareholders to realise shareholder value from their continued investment in the remaining group.”

Currently, Evergrande NEV has two distinct businesses – the manufacture and sale of NEVs, and management of healthcare properties, although the former constitutes a small part of overall revenues. Evergrande NEV’s latest annual report shows the health management segment contributed to 98.5 per cent of its total revenue in 2020.

Meanwhile, doubts about as to whether the cash-burning NEV unit can stay afloat, after the company warned last month, it was “at risk of discontinuing production” and needed about 29 billion yuan to launch more cars and achieve mass production. Leonard Law, a credit analyst at Lucror Analytics, said the sale will be of little help to the debt restructuring as it involves a mere transfer of some loss-making assets from one arm to another. “The outlook for Evergrande NEV remains precarious,” Law said. So far, the restructuring proposal has the support of only two small groups of creditors – those representing about a fifth of its US$13.9 billion existing bonds and a third of the US$5.23 billion bonds guaranteed by the company – far short of the 75 per cent threshold.

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