Evergrande Automobile Faces Uncertainty as Newton Group Share Subscription Agreement and Debt-for-Equity Swap Subscription Agreement Expire

In a recent announcement on the Hong Kong Stock Exchange, Evergrande Automobile revealed that the Newton Group Share Subscription Agreement and the Debt-for-Equity Swap Subscription Agreement have expired on December 31, 2023, as the involved parties failed to reach an agreement to extend the deadline.

Despite the expiration, Evergrande Auto emphasized ongoing negotiations with the Newton Group, as well as other stakeholders, to amend key terms of the proposed transaction and the debt-for-equity swap. The company stated that if these amendments are implemented, compliance with Rule 31.1 of the Takeover Code will be ensured when necessary.

On August 14, 2023, Evergrande Automobile had announced a significant strategic investment of $500 million from Newton Group, resulting in Newton Group holding a 27.5% share of Evergrande Automobile after the completion of the transaction.

To support Evergrande Automobile's business recovery and growth, a transitional funding agreement was signed between Newton (Zhejiang) Automobile Co., Ltd. (a Newton Group subsidiary) and Evergrande New Energy Vehicle (Tianjin) Co., Ltd. The agreement stipulated interest-free and guaranteed transitional funds totaling RMB 600 million in three equal installments for research and development, production, and sales.

However, on October 8, 2023, Evergrande Automobile received a letter from Newton Group, indicating the suspension of relevant obligations in the share subscription agreement, citing significant uncertainty stemming from Evergrande Automobile's share suspension and recent changes within China Evergrande. Newton Group stressed the importance of China Evergrande's debt restructuring and other prerequisites for the completion of the share subscription agreement.

Financial data revealed that Evergrande Automobile faced net losses of 7.394 billion yuan, 56.27 billion yuan, and 27.66 billion yuan from 2020 to 2022, respectively. In the first half of 2023, the company experienced a substantial year-on-year increase in revenue, reaching 154 million yuan, attributed to the launch of Hengchi 5. However, a gross profit loss of 60.88 million yuan was reported, reflecting challenges such as rising component prices and limited production capacity.

As of the end of the first half of 2023, Evergrande Automobile's financial position showed total assets of 42.852 billion yuan and total liabilities of 75.692 billion yuan. The company faced difficulties in repaying debts amounting to approximately 9.341 billion yuan and overdue commercial bills totaling around 3.591 billion yuan. The expiration of the share subscription and debt-for-equity swap agreements adds further uncertainty to Evergrande Automobile's future prospects.

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