Developer China Evergrande’s Hong Kong unit surges by 66.2pc after investment in electric car maker FF

But analysts say price surge is speculative and will not last long

PUBLISHED : Tuesday, 26 June, 2018, 1:45pm
UPDATED : Tuesday, 03 July, 2018, 8:22pm

Shares in Evergrande Health Industry Group, a Hong Kong listed entity under China Evergrande Group, the country’s biggest property developer, closed at HK$7.66 on Tuesday, pushing its market cap to an all time high of HK$66.2 billion.

The company, which has businesses in health care-related property development and medical services, surged by 66.2 per cent in Hong Kong, after it announced a HK$6.7 billion (US$854.85 million) capital injection to rescue troubled electric car maker Faraday Future (FF).

Evergrande pays US$853.85 million for stake in troubled electric vehicle maker Faraday Future

The company said in a stock filing after close of trade on Monday it had agreed to fully acquire Season Smart, which controls a 45 per cent stake in a joint venture it set up with FF last year, making Evergrande Health the electric car maker’s biggest shareholder.

Some analysts said the price surge was speculative and would not last long. “I think it’s just market speculation and excitement – finding something to buy when most stocks are not doing well. I think it’s a typical event-driven one or two-day shoot up pattern. Don’t think it can last and will fall back,” said Kevin Leung, executive director of investment strategy at Haitong International Securities.

“It is too early to tell how fundamentals of Evergrande Health will change because of this. And FF has always been a drag on all parties that have previously been involved,” he added.

FF’s founder, troubled Chinese entrepreneur Jia Yueting, and other original shareholders, will retain a 33 per cent stake, while the remaining 22 per cent will be held by employees.

FF was founded by Jia in 2014 in Los Angeles to build electric cars that could challenge Tesla. But operations in Nevada were shut late last year, as Jia struggled to keep afloat his cash-strapped business empire LeEco.

He missed an end-of-year deadline issued by securities regulators to return to China to address his debts. But he explained in an open letter that the key to addressing all problems was the volume of production and delivery of the FF91, a luxury EV developed by the car maker.

Season Smart took over a 45 per cent stake in the joint venture it set up with FF last year, and promised to make investments worth US$2 billion in the firm in several tranches.

Chinese media National Business Daily on Monday quoted a spokesman from FF as saying that Jia had managed to keep control of FF, as the company had a dual-class shareholding structure.

“Although Jia owns only a 33 per cent stake in FF, each share has 10 times the voting power of ordinary shares that Evergrande holds,” the spokesman was quoted as saying.

An Evergrande Health spokesman contacted by the South China Morning Post said it did not make sense to define Jia or anybody else as being in full control of FF.

FF was unreachable for comment by the time of publication.

According to a filing on Monday, Evergrande Health will appoint two directors to the board of the joint venture with FF.

One of them, Xia Haijun, will be nominated as chairman of the joint venture. Xia currently serves as vice-chairman, president and executive director of China Evergrande. In an announcement posted on FF’s official weibo on Monday, the company said Jia will be its chief executive.