Subsidiaries to Undergo Bankruptcy and Reorganization
On Monday, China Evergrande’s electric vehicle division reported that a Chinese court has mandated the bankruptcy and reorganization of two of its subsidiaries. This announcement led to a significant drop in the EV group’s shares, which fell by 7.9%, reaching their lowest point since May 16.
Background of the Bankruptcy Filing
The subsidiaries of the beleaguered real estate developer’s New Energy Vehicle operation (0708.HK) faced bankruptcy proceedings following creditor filings last month. However, the specific reasons for these filings were not disclosed.
Impact on Parent Company’s Negotiations
This development is expected to affect the ongoing negotiations between the liquidators of China Evergrande Group (3333.HK), recognized as the world’s most indebted property developer, and a prospective buyer interested in acquiring a stake in the EV company. Market analysts shared these insights with Reuters.
Upcoming Creditor Meeting
According to a separate filing on the National Enterprise Bankruptcy Information Disclosure Platform, a creditor meeting concerning the reorganization is scheduled for October 22 at the Guangzhou Intermediate People’s Court.
Court’s Decision and Details
The court ordered the subsidiaries, Evergrande New Energy Vehicle (Guangdong) and Evergrande Smart Automotive (Guangdong), to enter bankruptcy proceedings following a hearing on August 2. The company did not provide further details about the court’s decision.
Previous Warnings and Share Impact
On July 28, the electric vehicle maker indicated that creditors had requested court approval for the bankruptcy and reorganization of the two units. It also warned that these actions would have a significant impact on its production and operations. Consequently, the group’s shares dropped by 7% on July 29.
Administration and Creditors Involved
The Guangzhou Intermediate People’s Court appointed the law firm Zhong Lun (Shenzhen) as the administrator for the Evergrande Smart Automotive (Guangdong) reorganization. The creditors who filed for the reorganization are Guangdong Overseas Construction Consulting Co and Guangzhou Shenlong Road Transport Co.
Potential Sale and Liquidation Efforts
In May, the parent company’s liquidators, who hold a 58.5% stake in the EV unit, revealed ongoing discussions with a third-party buyer regarding the sale of a 29% stake in the EV group. The potential deal includes an option to sell the remaining stake within a specified period.
While a definitive agreement has yet to be finalized, the Evergrande parent company stated in late July that the preliminary terms involve the buyer providing a credit line to the EV company to support its operations.
(source)
