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Electric Carmaker Faraday Looks to Scrap Evergrande Investment Deal
Qian Tongxin | Wu Ziye
DATE:  Oct 08 2018
/ SOURCE:  Yicai
Electric Carmaker Faraday Looks to Scrap Evergrande Investment Deal Electric Carmaker Faraday Looks to Scrap Evergrande Investment Deal

(Yicai Global) Oct. 8 -- Faraday Future, the American electric carmaker run by controversial Chinese entrepreneur Jia Yueting, wants to scrap plans to sell a 45 percent stake to white knight investor Evergrande Health Industry Group.

The auto firm filed for arbitration in Hong Kong Oct. 3 to terminate all agreements with Evergrande Health, claiming a unit under the buyer did not make an advanced payment in July, which it had agreed to, Evergrande said in a filing to the Hong Kong Stock Exchange on Oct. 7. Evergrande Health is a listed unit under China's biggest real estate developer, Evergrande Group.

The investor had said in June it would acquire a stake in cash-strapped Faraday via a complex network of offshore companies, ultimately winding up in it taking shares in Smart King, Faraday's corporate shareholder. Evergrande Health was due to pay Smart King USD800 million by the end of this year, USD600 million next year and another USD600 million in 2020, according to the payment scheduled the pair agreed to.

It had already made the first payment on May 25 and then signed a supplemental agreement to make an advance payment of USD700 million in July this year, at the request of Faraday shareholders.

Risky Business

"Faraday Future can't carry on in without Evergrande," Zeng Zhiling, general manager of Shanghai-based LMC Automotive Consulting, told Yicai Global. He believes the dispute boils down to valuation adjustment mechanism attached to the investment deal and cannot see how plans to scrap the deal would be beneficial to Faraday otherwise.

VAMs are agreements that mitigate investors' risk by allowing them to adjust target valuations if certain conditions are met. Faraday and Evergrande's VAM stipulated that if the carmaker was unable to achieve mass production by the end of this year, something which is looking less and less likely, then the investor will take control of the company from Jia.

"Jia hopes to gain favor with the Hong Kong International Arbitration Center so the VAM will be invalidated," said Zeng, adding that it is a risky move.

Evergrande previously said that Faraday's factory in Hanford, California would be mass producing cars by the end of this year and that a new research and development base in southern China would enter operations by 2020.

But plans to bulk produce the firm's first car, the FF91, were thrown into turmoil late last month when a sample car caught fire after a display for company employees and their families. The blaze was caused by a battery issue, an insider close to Faraday told Yicai Global, adding that the company is refusing to pay suppliers and is letting staff go due to its cash woes.

Faraday has not responded to communication from Yicai Global.

Even if the company can begin mass producing its cars, it will encounter obstacles exporting to China amid the current trade tensions with the United States, Zeng added. He believes that mass production will be a crucial step forward for Faraday as its new products will be based on responses from the capital and consumer markets.

Editor: James Boynton

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Keywords:   Power Struggle,FARADAY FUTURE,Electric Cars,Evergrande Group