Evergrande woos Hong Kong tycoons to speed up electric vehicle push

Former tabloid journalist married to runaway billionaire and poker player is among those supporting the world’s most indebted real estate group’s bid to become a leader in electric cars, although he hasn’t sold a single vehicle .

Hong Kong-listed shares of Evergrande New Energy Vehicle have risen 81% this year, catapulting the Chinese group’s market capitalization to more than $ 63 billion – above that of traditional rivals such as Ford – even as ‘he struggles to put his first car on the market.

But Evergrande NEV is not just another example of the electric vehicle mania that has swept global markets. The rally is linked to signs that influential funders will continue to support parent company China Evergrande and its network of affiliates, even as it comes under pressure from Beijing to bring its over $ 120 billion in borrowing under control.

“If it’s not a bubble, I don’t know what it is,” said David Blennerhassett, analyst at Quiddity Advisors, of Evergrande NEV stock.

At the end of January, Evergrande NEV announced that a handful of individuals with ties to its parent company and chairman had bought $ 3.4 billion in shares, pushing the share price up more than 50% in only one session.

Hui Ka Yan, who is also the majority owner of Evergrande, was previously the richest man in China. His personal connections extend to poker games with Hong Kong real estate tycoons such as Joseph Lau of Chinese Estates, who in 2014 was convicted of bribery and money laundering in Macau. In January 2020, Lau invested in Evergrande’s dollar bond issue, according to Hong Kong Media.

Former Chinese Estates President and CEO Joseph Lau leaves a restaurant with Chan Hoi-wan in Hong Kong in March 2014 © Reuters

For the January 2021 fundraiser, Evergrande NEV solicited Lau’s wife Chan Hoi-wan for $ 400 million, according to a stock exchange statement. Chan is a former entertainment reporter for Apple Daily, a Hong Kong tabloid known for his pro-democracy stance. It also owns 2.4 percent of Evergrande itself at the end of June and was an investor in the group’s real estate services prior to its stock market listing in November.

Other investors in the real estate sector include a company linked to Cheung Chung-kiu, another poker opponent of Hui, who bought the London one last year. most expensive house and that stepped in to buy Evergrande bonds when prices fell last September.

Representatives for Lau, Chan and Cheung did not respond to a request for comment.

Maggie Hu, an expert in finance and real estate at the Chinese University of Hong Kong, said the Hong Kong tycoons “have formed strategic partnerships [with Evergrande] over the years and their business interests are closely linked and intertwined ”.

Evergrande NEV represents the parent company’s attempt to diversify as the Chinese real estate market slows, experts say.

“The problem with the Chinese real estate market is that the prices have been too high, which has created a huge risk for the economy. . . they are therefore looking for an additional growth engine, ”said Liu Jing, professor of accounting and finance at the Cheung Kong Graduate School of Business in Hong Kong.

The electric vehicle subsidiary, part of a large corporate network that includes China’s largest football club, was known as Evergrande Health before it was renamed in August.

But Evergrande NEV focuses primarily on real estate development, said Nigel Stevenson, an analyst at research firm GMT Research. He cites the electric vehicle subsidiary’s cash flow statements that show high levels of continued investment in real estate, only a portion of which goes to factories.

The parent company’s lines of credit to its electric vehicle subsidiary have raised questions among analysts about the use of the money the latter is raising, at a time when Evergrande was selling assets to raise cash.

Line chart of Evergrande New Energy Vehicle stock price in HK $ showing shares of real estate group's electric car business rising

The parent company’s shares and bonds sold in September following reports it had sought support from the Guangdong provincial government in China, where Evergrande is based. The company has denied the information.

An Evergrande stock placement in October raised just $ 555 million, against a target of more than $ 1 billion, while its access to bank financing is limited by rules unveiled in late December.

“In this difficult external financing environment, it is more difficult for Evergrande to obtain debt financing from banks in China,” said Hu of CUHK. “In order to raise more funds and alleviate its current debt situation, Evergrande could raise funds from its subsidiaries.”

Evergrande NEV said the money raised in January would be used to help achieve its goal of becoming “the largest and most powerful group of new energy vehicles in the world”, but added that it would also help “pay off debt”. In a separate statement, the company said “most” of the proceeds would be used for research and development, as well as for building the base.

Financial statements show Evergrande NEV owed Evergrande 34 billion rmb ($ 5.3 billion) in June. An additional loan of RMB 31 billion is guaranteed by its parent company, which means that debt reduction at the subsidiary level would improve the group’s balance sheet. A proposal to list Evergrande NEV shares in mainland China could raise additional capital to alleviate the debt of the parent company.

Some investors seem to be hoping that Evergrande NEV will be able to achieve its ambitions in terms of electric vehicles. A rally in stocks in February was sparked by the posting of videos online showing its pre-production models being tested. But others argue that the company’s outlook has more to do with its parent company than any technological breakthrough.

“As it stands, Evergrande NEV basically looks like a fundraising vehicle to wind up parent company product,” Blennerhassett said. But the money raised by Evergrande NEV “is just a drop in the ocean to what extent Evergrande Group is exposed”.

Additional reporting by Nicolle Liu in Hong Kong

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