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China debt crunch

Evergrande halts plan for mainland China electric car listing

EV unit was expected to use funds for auto development and working capital

Evergrande Group's Hengchi electric vehicles are on display at the Auto Shanghai show in April. Evergrande's electric car unit has halted plans for a mainland listing.   © Reuters

HONG KONG -- China Evergrande Group's electric car unit has terminated plans for a maiden mainland share offering amid concerns over the fate of the embattled parent, which is fast running out of cash.

China Evergrande New Energy Vehicle Group, which at its April peak was more valuable than Ford Motor despite having yet to sell a single car, said late on Sunday that it had decided to halt its plan to sell shares on Shanghai's STAR Market after "due and careful consideration." It did not share any other details.

While the EV unit is a relatively small part of Evergrande Group's empire, which includes property development, management and financial services, it was the biggest gamble taken by founder Xu Jiayin in recent years as part of plans to bet on a future growth sector. The parent and a clutch of backers have plowed billions into the company, which is still some time away from delivering its first vehicle.

The move comes as some of Evergrande Group's long-standing backers begin to desert it and underscores diminishing options to attract investors and sell assets to safely descend from a debt of over $300 billion. The EV unit and the parent, which are both listed in Hong Kong, have seen four-fifths of their respective valuations eroded this year.

The EV unit first revealed plans for the mainland listing in September last year. It had planned to sell no more than 1.6 billion shares and intended to use the proceeds to fund new-energy vehicle projects and working-capital replenishment.

On Friday, the unit declared there is no guarantee it can meet its financial obligations and it continues to look for strategic investors.

"The group is encountering a serious shortage of funds," the EV unit said in an exchange filing late Friday. "In view of the liquidity pressure, the group has suspended paying some of its operating expenses and some suppliers have suspended supplying for projects."

While it was trying to sell some assets, it remains uncertain as to whether the group will be able to "consummate any such sale," it said.

The car unit was officially created in July last year when Evergrande Health changed its name to Evergrande NEV. Last month, the unit reported a 4.8 billion yuan ($743 million) loss in the first half on revenue of 6.92 billion yuan. Almost all of that came from the company's health and elderly-care business.

The parent has also failed to pay suppliers, contractors, retail debt investors, banks and employees, leading to the suspension of more than half its 800 ongoing projects. Last week it missed a deadline to repay some $83 million in bond interest payments to offshore investors and is staring at a series of bond coupon deadlines this year, which combined amount to $767 million. 

The company has flagged that it will default if it fails to attract investors or sell assets and media reports have said China has stepped up oversight to ensure the company does not use its project funds to repay creditors.

Some of its long standing backers are also ditching the company. Chinese Estates Holdings and its associates who have been involved in almost every Evergrande fundraising since the latter's listing in Hong Kong in 2009, last week said they plan to exit the company fully. China Estates, its founder and CEO together are the second largest shareholders behind the Evergrande's founder with a 14.6% stake.

Another backer, Hong Kong-listed China Strategic Holdings has said it would seek shareholder approval to sell its entire 1.4% stake in Evergrande NEV, citing share price volatility.

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