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A Chinese court has ordered two companies controlled by Chinese construction company Evergrande Group to enter bankruptcy and reorganization proceedings at the request of creditors.
Evergrande New Energy, a subsidiary focused on electric vehicle manufacturing, said in a statement to the Hong Kong Stock Exchange yesterday that a hearing was held at a Chinese court on Friday and the decision was in the creditors’ favor, a few days after they submitted their request.
The company disclosed the bankruptcy filings of its subsidiaries Evergrande New Energy Vehicle (Guangdong) and Evergrande Intelligent Vehicle (Guangdong) on July 28. At the time, Evergrande New Energy admitted that the request could “have a significant impact on the production and operation activities of the company and the affected subsidiaries.”
The company’s shares fell 4.76% in Hong Kong yesterday after the court ruling was announced. Evergrande New Energy’s shares have fallen more than 32% this year. In June, the company warned that authorities could seize assets due to debt.
Evergrande New Energy acknowledged that Chinese authorities had asked it in writing to pay about 1.9 billion yuan within 15 days, but the company assured that it would appeal the decision.
On May 22, Evergrande New Energy Automobile revealed that Chinese authorities had demanded the return of the subsidy-equivalent amount because its electric vehicles failed to achieve the promised mass production. As of the end of 2023, the company’s first model, Hengchi 5, had produced 1,700 units and delivered nearly 1,400 units.
If the appeal is dismissed, “the group will face the risk of ‘compulsory repossession’ of land, buildings and machinery required to repay incentives and subsidies,” which would have a significant impact on the company’s financial position and operations.
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At the end of May, Evergrande Group legal officials claimed to have found a possible buyer for up to 58.5% of the electric vehicle subsidiary. Evergrande New Energy’s factory in Tianjin, northern China, was forced to suspend production due to “serious shortage of funds.”
In late January, a Hong Kong court ordered Evergrande to be liquidated against foreign creditors, a decision that may not be recognized in mainland China, where most of the group’s assets are located.
Evergrande, which has debts of about $330 billion, defaulted more than two years ago after it encountered a liquidity crisis due to Beijing’s restrictions on financing for highly indebted real estate developers.
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