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China debt crunch

Embattled Evergrande reveals attempted EV stake sale to Xiaomi

Developer looking to raise funds to tide over a liquidity crisis

China Evergrande said it held talks with Xiaomi over a possible stake sale in its EV unit.   © Reuters

HONG KONG -- China Evergrande Group revealed on Friday it held talks about selling a stake in its EV unit to smartphone maker Xiaomi as the world's most indebted property developer comes under mounting pressure from Beijing to manage its liquidity crisis.

Evergrande's statement came a day after Reuters reported the company was in talks with Xiaomi and state-backed investment companies in Shenzhen to sell a part of its 65% stake in China Evergrande New Energy Vehicle Group, a flagship project started by the group's billionaire founder Xu Jiayin, three years ago.

Evergrande's shares, which have ceded two-thirds of their value this year, rose as much as 6.4% in early trade but wiped out all gains to end 1.8% lower. Its electric vehicle unit, which climbed as much as 9%, ended 5% higher giving it a market valuation of $13.2 billion. Xiaomi fell 2.1%.

The developer is looking to offload assets, spin off units and sell properties at a steep discount to try and safely descend from a $301 billion debt pile. Chinese banks have moved to cut their exposure to the company, which has not sold offshore bonds since last year and failed to pay some suppliers on time, intensifying worries over its financial health.

Evergrande is a bellwether for China's leveraged property sector, widely considered large enough to send ripples throughout the nation's $50 trillion financial system. It is closely tracked by regulators, investors and rating agencies concerned about the potential for contagion should the company default on loans from banks and trusts.

The People's Bank of China and the China Banking and Regulatory Commission on Thursday after a meeting with the company's executives told the developer to reduce its debt burden and refrain from spreading "untrue" information.

Evergrande said it will disclose material events in accordance with regulations and clarify any misinformation in a timely way.

On Friday, the company said the talks with Xiaomi did not progress further and no deal was reached.

"During the process of finding strategic partners, we had initial exchanges with Xiaomi, but did not have further negotiation to advance such a deal," it said in a statement.

The smartphone maker said it had held discussions with various carmakers but no investment was made. It did not, however, name Evergrande in the statement on its official Weibo social media account.

Evergrande has spent tens of billions of dollars on acquisitions, research and building factories over the past three years, setting the goal of becoming the "world's largest and most powerful" new energy vehicle group within three to five years. While it has unveiled a number of vehicle models, Evergrande has not been able to deliver a single car so far.

The developer raised $1.4 billion in May by selling a 2.7% stake in the electric vehicle unit to a group of investors and the unit sold new shares worth $3.4 billion in January.

Xiaomi, which makes everything from phones to vacuum cleaners, is the latest player to join the EV race in China. In March, it announced plans to establish a wholly owned unit to manufacture clean-energy cars, and to invest $10 billion in the next decade. Xiaomi's founder and CEO Lei Jun plans to lead the new EV unit.

While the EV market in China is growing rapidly as more people embrace clean energy, both Xiaomi and Evergrande face intensifying competition. Companies including Tesla and domestic startups Nio, Xpeng Motors and Li Auto are accelerating the launch of new models.

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