Evergrande Auto to Gain $3.6 Billion from Debt-laden Companies' Transfer to Another Unit

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Evergrande Auto, the electric vehicle arm of Chinese property developer China Evergrande Group, is set to gain $3.6 billion from the transfer of two debt-laden companies to another group unit as part of the auto firm's restructuring. The restructuring comes at a time when Evergrande Auto is struggling with a funding crunch and suspended production of its Hengchi 5 model. With the transfer, Evergrande Auto can focus on the new energy vehicle (NEV) segment and improve its valuation, which may attract investors and raise funds. The restructuring is part of Evergrande's transformation plans, as Chairman Hui Ka Yan has vowed to shift the group's primary business from real estate to the automobile venture and make one million vehicles a year by 2025. Evergrande has been at the centre of a property debt crisis in which multiple Chinese developers defaulted over the past year, with over $300 billion in total liabilities, including offshore debt.

The deal involves China Evergrande New Energy Vehicle Group selling the entire issued share capital of its Flaming Ace Ltd and Assemble Guard Ltd businesses to Anxin Holding for a nominal consideration of 2 yuan. Evergrande Auto reported that as of end-2022, Assemble Guard and Flaming Ace, which hold 47 property projects, reported a net liability of 24.79 billion yuan and post-tax net loss of 8.82 billion yuan. Evergrande Auto does not expect to receive any net proceeds from the transfer, but the move could help improve the EV subsidiary's valuation and eventually "may help to attract investors to Evergrande Auto and raise funds". Evergrande's parent company announced a proposal last month to restructure its $22.7 billion of offshore debt, giving creditors a basket of options to swap their debt into new bonds and equity-linked instruments backed by the group and its two Hong Kong-listed companies, Evergrande Auto and Evergrande Property Services Group.

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