China Evergrande is seeking to raise money from onshore stock investors to fund the group’s capital-hungry electric car venture and fuel its ambition of overtaking Tesla over the next five years.
Hong Kong-listed unit China Evergrande New Energy Vehicle Group has proposed to sell yuan-denominated shares on the Star Market, the Nasdaq-style board of the Shanghai Stock Exchange, according to an exchange filing. The secondary listing is pending regulatory approval, it said without providing further details.
The move follows within days of the carmaker’s decision to tap outside investors including Tencent Holdings and Jack Ma-backed private equity firm Yunfeng Capital for HK$3.99 billion (US$516 million) through a private stock placement.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
“It is positive as the unit can raise the additional cash to fund its own growth and reduce its reliance on China Evegrande,” said Raymond Cheng, an analyst at CGS-CIMB Securities in Hong Kong. This should alleviate the pressure on the balance sheet of China Evergrande, the property developer which owns 73.5 per cent of the carmaker.
Shares of China Evergrande New Energy tumbled as much as 5.6 per cent in the morning following the announcement amid concerns about earnings dilution before the venture could turn a profit. The stock has surged 219 per cent through Thursday this year.
The EV maker, however, recorded a pre-tax loss of 2.68 billion yuan in the first half of this year in its gestation period, widening a loss of 1.96 billion yuan reported a year earlier.
The carmaker, ultimately controlled by China’s third richest tycoon Hui Ka-yan, needs a lot of capital to support its grand plan of becoming the world’s biggest and strongest EV maker in three to five years, suggesting it wants to dislodge Tesla and dominate the global market by then.
Xi Jinping’s trillion-yuan baby, the Star Market, is poised for the next spurt of growth. Here’s why
China Evergrande New Energy Vehicle Group unveiled six Hengchi car models in August, and plans to start mass production from next year. It plans to raise its annual capacity to between 500,000 and 1 million vehicles within three to five years.
The sales of such vehicles could hit 1.1 million units in the mainland China market this year, before tripling by 2025, according to the China Association of Automobile Manufacturers. Tesla’s Model 3 currently dominates the local market by outselling its closest rival by three to one.
A recovery in China’s automobiles market, the world’s biggest, from the damage of the coronavirus pandemic has fuelled an upsurge in the market capitalisations of Chinese electric vehicle makers such as NIO, Xpeng, and Li Auto.
Beijing wants top technology companies to list on The Star Market. Since its debut in July 2019, it has drawn 164 companies with a total market value of 2.86 trillion yuan and is now Asia’s largest technology-heavy market.
More from South China Morning Post:
- Elon Musk, watch out: Tesla competitor Xpeng Motors’ value soared at its New York Stock Exchange IPO – who is He Xiaopeng, the billionaire CEO behind China’s hyped electric car brand?
- China Evergrande electric-car unit to raise US$516 million from at least six investors such as Tencent, Jack Ma-backed Yunfeng Capital
- Geely Auto set to become first carmaker to list on Shanghai’s Star Market as it seeks to raise US$2.9 billion
- Xpeng seeks to raise up to US$1.1 billion in New York IPO as electric car maker prepares to challenge Tesla in China
- Evergrande’s electric car unit dazzles investors with flashy ad campaigns. But the quality of the products will count eventually