Auto Industry

Lethal LeEco

Evergrande deal unravels

Jia-Yueting-w-355x355

The creditworthiness of troubled tycoon Jia Yueting is running as thin as his depleting circle of friends.

In 2016, when the carmaking unit of Jia’s media conglomerate LeEco was in dire need of funding, Xinhua reported that his business school classmates had come to the rescue, lending him $600 million.

These classmates-turned-creditors then saw Jia flee to the US and he is still to respond to calls byChinese regulators to return and sort out his local business affairs.

Sunac, which has made a name for itself as a serial white knight, then stepped in with further support. In early 2017 the Tianjin-based developer’s chairman Sun Hongbin coughed up Rmb15 billion ($2.2 billion) to bail out Jia, his fellow Shanxi native. Less than a year later, Sunac wrote off the investment.

This didn’t deter Evergrande, another property heavyweight, from betting on Jia turning around his dwindling fortunes. Evergrande Health, a Hong Kong-listed unit, stumped up another $860 million in June to become the largest shareholder of Faraday Future, Jia’s struggling electric car venture in California (see WiC416).

Last week Evergrande Health announced in a stock exchange filing that Faraday Future had already burned through its initial investment and was asking for another $700 million in funding. Making its rift with its rescuer public, Faraday Future then published a statement accusing Evergrande of holding back the agreed funds in a bid to seize control of the carmakers key assets.

Evergrande responded the payments weren’t made because conditions outlined in the original deal were not met.

When the deal was initially struck, analysts highlighted terms in which Jia was supposed to surrender his voting rights to Evergrande if Faraday’s management did not perform its duties.

Jia has now filed for arbitration in Hong Kong, seeking to junk the agreement and strip Evergrande of its rights to approve future financing deals.

Evergrande’s investment in Faraday was part of the property conglomerate’s attempt to diversify its business. In another move to broaden its base, it has just paid Rmb14.5 billion for a 41% stake in Guanghui Group. Guanghui is one of the biggest property developers in Xinjiang but analysts believe Evergrande is more interested in its automotive business, especially a couple of car distribution networks that operate nationally. One of them, Grand Baoxin Auto, a Hong Kong-listed unit, ranks as the world’s largest BMW dealer. “The group will commence full strategic cooperation with Guanghui Group to promote the company’s development in the areas of vehicle sales, energy, real estate and logistics,” Evergrande said in a stock exchange announcement.

But Guanghui has something in common with Faraday, says Hong Kong’s Apple Daily: it has been mired in financial trouble too.

Keeping track, Jan 11, 2019: The survival of Faraday Future seems to be a never-ending debt saga. Over the past year different investors have came to Jia Yueting’s rescue but got their fingers burnt.

Even property conglomerate China Evergrande’s boss Xu Jiayin, named by Forbes as China’s richest man last month, has decided to cut his losses and dial down his cooperation with Jia, the troubled LeEco boss.

We reported in October how Hu’s Hong Kong unit Evergrande Health had committed to a $2 billion investment in Faraday but that both ended up taking each other to court just a few months later (see above).

On New Year’s Eve, Evergrande Health announced that it has reached a settlement with Faraday. Both sides have agreed to drop allegations against each other. Having invested $700 million in Faraday so far, Evergrande will hang onto a 32% stake in Faraday but stop further financing for the start-up. It will forgo control over Faraday’s assets, which could now be used as collateral for a fresh debt restructuring.

Jia has the option of buying back Evergrande’s stake within five years. Success is still possible should Faraday start delivering its electric cars soon, although the California-based company missed its production target last month.

According to The Verge, Faraday has started discussions with potential investors still interested in financing it. Despite this potential reprieve, Jia’s empire is facing other setbacks. Sina Finance says LeEco this week auctioned a Beijing property which it acquired for Rmb3 billion ($440 million) in 2016. The minimum bid was set at Rmb2.3 billion on Taobao. Not a single offer was made although nearly 50,000 onlookers went to the site to see what Jia was selling…


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.