Shares in Evergrande’s EV venture surge 60% on capital injection

Shares in the electric car unit of China Evergrande, the world’s most indebted property company, surged to a record high as a $3.4bn cash injection catapulted its market valuation past those of traditional carmakers such as Ford.

The company’s Hong Kong-listed shares soared as much as 67 per cent on Monday, a day after the group announced that strategic investors had bought a 9.75 per cent stake for HK$26bn (US$3.35bn).

The rally boosted the EV unit’s market capitalisation by $17bn to $51bn, ahead of established automakers including Ford, which is currently worth about $45.8bn.

The EV unit’s market cap is now also far in excess of its parent company. Evergrande, whose shares rose by 8 per cent on Monday, is now valued at $28.8bn.

Evergrande Auto, as the EV unit is known, has vowed to spend Rmb30bn ($4.6bn) between 2019 and 2021 building factories and acquiring technical expertise in its bid to become a global leader in electric cars.

But production delays, unfinished factories and the company’s naming in an industry investigation by China’s state planner have piled pressure on Evergrande Auto, which has not begun commercial sales of its vehicles.

Evergrande’s pivot into EVs also coincided with Beijing’s increasing scrutiny of the property sector in a bid to cool red-hot prices, such as by limiting the amount that developers can borrow.

Evergrande Group, the parent company, has a nearly 68 per cent stake in the EV unit.

The parent group’s early repayment of a $2bn bond this month helped ease investor concerns about Evergrande’s debt burden, which as of June stood at Rmb835.5bn. Last March, the company pledged to reduce its borrowings by Rmb150bn per year through 2022.

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Investors in the Evergrande Auto fundraising included Greenwoods Global Investment; Liu Minghui, chairman of China Gas; and Chan Hoi-wan, spouse of Joseph Lau, former chairman of developer Chinese Estate. They agreed to a one-year lock-up of shares. 

Evergrande Auto said the funds would be used to invest in research and development, production and paying off debts.

Soaring interest in China’s electric car makers has helped propel shares of companies including Nio, Xpeng and Li Auto as investors seek out the next potential Tesla in the world’s largest EV market. But some are sceptical Evergrande Auto will be able to compete in the crowded field.

Nigel Stevenson, an analyst at Hong Kong-based accounting investigation firm GMT Research, said that most of the proceeds from Evergrande Auto’s capital fundraising could end up being passed on to the parent company. As of June, Evergrande Auto’s debt stood at Rmb75bn, most of which was either owed to or guaranteed by its parent. 

“Evergrande Auto remains primarily a property company,” Mr Stevenson added. The company’s largest cash outflow in 2019 was investment in properties under development, he pointed out.

Evergrande Auto’s shares ended trading in Hong Kong about 52 per cent higher on Monday.

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