Evergrande Auto is about to receive a new round of capital injection. After five days of suspension, news came out on the evening of May 26th that Evergrande Auto announced that its parent company China Evergrande and other related parties have signed preliminary terms with a third-party potential buyer for the sale of shares. Once the transaction is completed, all shares of Evergrande Auto held by China Evergrande will be sold to the third-party buyer.

The news was announced after both parties agreed to enter into more in-depth negotiations and ultimately sign a detailed purchase agreement. It is reported that China Evergrande and related parties hold as many as 6.347 billion shares, which constitutes 58.5% of all issued shares of Evergrande Auto. Under the agreement of both parties, about 3.14 billion potential sale shares are expected to be soon acquired by the buyer, which is equivalent to approximately 29% of the issued shares of Evergrande Auto. Another part, about 3.203 billion potential sale shares, will be provided to the buyer as an option exercisable within a specific future period.

According to the financial report of Evergrande Auto for 2023, China Evergrande holds a total of 6,347,948,000 shares in Evergrande Auto, representing 58.54%. This means that once the transaction is completed, China Evergrande will completely exit its shareholding in Evergrande Auto.

Looking back to January this year, the Hong Kong court had issued a winding-up order against China Evergrande. Correspondingly, China Evergrande also announced on the same day that members of the Amic Provisional Liquidators Limited, Edward Simon Middleton, and Huang Yongshi, were appointed as its liquidators. Once the company is deemed unable to repay its debts, the court has the authority to issue a winding-up order and suspend the rights of the company’s directors, leaving the liquidator to manage and liquidate the company's assets. It seems that the sale of shares of Evergrande Auto is being carried out under this legal framework.

As China Evergrande's debt restructuring plan was affected, all related activities have restarted according to new statutory procedures. The original debt restructuring methods are suspended, and the liquidator is responsible for protecting the asset value of creditors and related stakeholders and ensuring that they can be maximized and returned.

Another point worth noting is that simultaneously with the transfer of shares, Evergrande Auto will also obtain a new credit agreement. According to this agreement, the buyer will provide a certain credit line to Evergrande Auto to support the company's continued operations and the advancement of its electric vehicle business development. However, Evergrande Auto also emphasized that the equity transfer and the possible credit agreement in the future still require more in-depth due diligence, including but not limited to verification of the potential buyer's funds and review of the company's assets, debts, business, financial, and legal conditions.

Evergrande Auto will resume trading of its shares at 9 am on May 27th. The company admits that it is currently facing a tight financial situation, its Tianjin factory has ceased production since the beginning of 2023, and has not resumed production as of the date of the announcement.

The Tianjin factory is not only one of the main production bases for Evergrande Auto, but it also began producing the Hengchi 5 according to market demand last year and entered mass production in September 2022. However, by the end of 2023, the cumulative number of cars rolled off the production line at this factory was only 1,700, which did not meet the expected related production requirements. At the same time, the cumulative delivery of the Hengchi 5 exceeded 1,389 units.