Evergrande Auto shares take a dip as investors doubt latest US$347 million share sales is enough to get Hengchi EVs on the road
- At HK$3 apiece, the new shares are priced at a discount of about 15 per cent to their closing price on Friday
- It is the second shares sales by the carmaker in two weeks, as the debt-stricken developer strives to make electric vehicles its main business
China Evergrande New Energy Vehicle Group, also known as Evergrande Auto, saw its shares drop as much as 3 per cent to HK$3.42 in the morning session. The share price has lost 95 per cent since a peak of HK$72.54 in February.
Evergrande Auto said on Friday it would issue 900 million new shares at HK$3 each, a discount of 15 per cent to Friday’s closing price, raising HK$2.7 billion (US$347 million) to fund the research and development of its Hengchi EVs.
The carmaker’s shares bounced back strongly in the afternoon to finish the day 11 per cent higher at HK$3.92, as traders took advantage of the depressed price.
“The share-price bounce of Evergrande Auto was because investors wanted to buy low,” said Jeffrey Chan Lap-tak, a founding partner at Oriental Patron Financial Group.
Chan said it would be hard for the share price to rise much higher as China Evergrande did not have a long history in the carmaking industry.
“It is the right direction for China Evergrande to shift its focus from property to electric vehicles. However, it will take a long time and a lot of investment to make it happen. The fundraising over the past two weeks is not going to be enough to allow Evergrande Auto to deliver a new car any time soon,” said Gordon Tsui Luen-on, chairman of Acer King Securities.
“There are a lot more established carmakers in the market investing in electric vehicles. Some have already started production and sales, while Evergrande Auto is still in the early stage of development. Even if it can launch a new model soon, China Evergrande is facing an uphill battle to compete with other established EV makers.”
The shares of China Evergrande Group fell 1 per cent to HK$2.75 on Monday after Hang Seng Indexes removed them from the constituent stocks of the Hang Seng China Enterprise Index on Friday. The home builder’s share price has lost over 80 per cent this year.
Evergrande Auto will sell 900 million new shares, or 8.3 per cent of its enlarged share capital, in what is known as a top-up placement. Under this arrangement the controlling shareholder, China Evergrande, via its subsidiary Evergrande Health Industry Holdings, will place its existing shares with independent investors, then subscribe to the same amount of new shares.
This will dilute China Evergrande’s shareholding in the carmaker from 62.55 per cent to 57.36 per cent.
“The company intends to dedicate the proceeds to the research, development and production of the group’s new energy vehicles, laying the groundwork for putting Hengchi new energy vehicles into production,” Evergrande Auto said in the stock exchange filing.
The board of directors said the placement of new shares will “broaden the shareholder base, strengthen the capital base and enhance the financial position and net assets base” of the company.
The carmaker has previously said it planned to start producing EVs in the fourth quarter of this year and delivering them to customers early next year. It has so far unveiled nine models under the Hengchi brand, which means “never stop” but none are in production yet.
In March, the company set itself the ambitious target of selling more than a million vehicles by 2025 and more than 5 million by 2035.
The carmaker reported a first-half loss of 4.8 billion yuan on the back of a US$75 billion decline in market capitalisation in July.
