China Evergrande New Energy Vehicle Group (Evergrande NEV) has been served a bankruptcy and reorganisation notice by its creditors, in another sign of deepening troubles facing the carmaking unit of the insolvent China Evergrande Group.
Evergrande New Energy Vehicle (Guangdong) and Evergrande Smart Automotive (Guangdong), two subsidiaries of Evergrande NEV, received the bankruptcy petition filed in the local provincial courts on Friday, which could have a “material” impact on production and operations, the company said in a filing to the Hong Kong stock exchange late on Sunday.
Evergrande NEV’s shares tumbled 9 per cent to HK$0.305 on Monday.
The news comes two months after the carmaker was asked by China’s local governments to return 1.9 billion yuan (US$261.9 million) in subsidies – received under a series of investment agreements in 2019 – for failing to produce and deliver cars.
“Evergrande NEV is now in a difficult position,” said Shen Meng, director at Beijing-based investment firm Chanson & Company.
“Should the company declare bankruptcy, it may lose control of its two subsidiaries, further weakening the quality of its assets. However, given the company’s current condition, [its downfall] will not have an industry-wide impact,” he added.
Evergrande NEV faces serious financial challenges, according to its latest annual report. The company declared a total comprehensive loss of 12.3 billion yuan, with liabilities amounting to 72.5 billion yuan. Last year, the company produced a total of 1,700 cars but managed to sell only 1,389 units.
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A vanishing fairyland dream: how China Evergrande rose, then crashed
A vanishing fairyland dream: how China Evergrande rose, then crashed
“With the help of new investors, Evergrande NEV will likely be able to revitalise its assets, settle its debts and continue its operations to resolve financial difficulties,” said Liu Yi, managing partner and head of Hong Kong office at Everbright Law Firm.
China Evergrande, the world’s most indebted developer with more than US$300 billion in liabilities, saw its troubles worsen after China’s securities regulator found that it had inflated its sales by 564 billion yuan and profits by 92 billion yuan in the years leading up to its collapse. PwC was the auditor during the period.
China’s Ministry of Finance and Hong Kong’s audit regulators signed a memorandum this month, saying they will assist each other and are mutually reliant in their respective investigations of PwC’s audit work.
A growing number of state-owned firms, including major conglomerates such as PetroChina and Bank of China, have terminated their contracts with PwC after regulators launched their investigations.
The auditing firm is reportedly halving the salaries of its China-based partners and laying off some of its employees in an attempt to cope with the client exodus.
