Jia Yueting wants to tear up the agreement with the Hong Kong investor Evergrande Group, and the two parties may part ways on the road to car manufacturing.
On October 7, Evergrande Health (00708.HK), a subsidiary of Evergrande Group, announced that Smart King, its previous investment, filed an arbitration with the Hong Kong International Arbitration Center on October 3, demanding that Shi Ying, a subsidiary of Evergrande, be deprived of its rights as a shareholder.The financing consent right, and rescind all agreements.Smart King wholly owns Faraday Future (hereinafter referred to as FF) Group. FF is a car manufacturing company founded by Jia Yueting in the United States and is the main carrier for its layout of the car business.
Evergrande Group participated in Jia Yueting's car-making project on June 25 this year. Evergrande Group provided Evergrande Health with a three-year unsecured loan of 6.75 billion Hong Kong dollars, and through this company acquired Hong Kong Shiying Co., Ltd. under the chairman of Zhongyu Group Zhao Du(hereinafter referred to as Shi Ying) 100% equity.Season Smart holds a 45% stake in Smart King.(For details, please refer to Caixin.com’s report that Xu Jiayin paid for Jia Yueting’s car manufacturing and Evergrande Health became the single major shareholder of FF)
Evergrande Health disclosed the fuse of the conflict between the two parties.According to Evergrande, Shiying and FF Top Holding, which is actually controlled by Jia Yueting, reached an agreement on November 30, 2017. Shiying needs to invest 2 billion US dollars in Jia Yueting's car-making plan within three years.The financing entity is Smart King.
The $2 billion was originally scheduled to be divided into three payments.According to the agreement, Season Smart will invest US$800 million first, and need to invest US$600 million in installments on or before December 31, 2019, and then receive another US$600 million before December 31, 2020.Evergrande Health said that in July 2018, FF Top Holding, which is actually controlled by Jia Yueting, proposed that Season Smart's US$800 million had basically been used up, and asked Season Smart to pay another US$700 million in advance.
The two parties signed a supplementary agreement again, and agreed to pay 700 million US dollars in advance on the premise of meeting the payment conditions.Evergrande Health said that although Shi Ying, a subsidiary of Evergrande, is the single major shareholder of Smart King, Jia Yueting holds 33% of the shares through a nominee holding agreement, and FF Top Holding, which Jia Yueting actually controls, has a majority of the directors of Smart King.Taking advantage of this, Smart King demanded payment from Season Smart without meeting the payment terms of the contract, and initiated arbitration.
People close to Evergrande Group said that Evergrande had no prior knowledge of Jia Yueting's arbitration.The financing consent right that Jia Yueting intends to release is an agreed clause in the previous US$2 billion financing agreement.As the largest shareholder of FF, Evergrande Group, if FF proceeds with financing without Evergrande’s consent, Evergrande’s equity will inevitably be diluted. In order to protect their own interests, relevant parties of Evergrande have the right to agree to FF’s follow-up financing.
Evergrande did not disclose what conditions must be met if FF is paid in advance.In fact, in the previous US$2 billion financing agreement, Season Smart and FF also agreed on specific installment payment terms.Hua Hongji, director of Shi Ying, once told Caixin reporter that the prerequisite for investing in batches is that FF needs to reach certain milestones in sequence, that is, Shi Ying will continue to invest after completing a certain goal agreed in advance.Hua Hongji did not disclose the specific content of the milestone.
Car manufacturing financing is generally highly related to the pace of mass production.On August 28 this year, the first pre-production car of Jia Yueting's main body, FF, rolled off the assembly line.According to the aforementioned insider, according to the previous agreement, one of the conditions for the payment of US$600 million at the end of 2019 is that FF's first model, FF91, will be mass-produced in the first quarter of 2019.
However, FF91 still faces many difficulties in mass production. An FF engineer revealed that the mass production of FF91 has not yet made substantial progress, and the problem of battery leakage has not been resolved.FF91 focuses on acceleration performance. To achieve this, the power of the battery needs to be increased, which will cause heat dissipation problems accordingly.FF adopts a relatively small battery liquid cooling technology, which needs to pressurize the liquid to achieve flow to dissipate heat, but pressurization can easily lead to battery liquid leakage.
A person close to FF said that FF has no money at all.
According to another person familiar with the matter, after Evergrande took a stake in FF in June this year, the cooperation between the two parties was not very pleasant, and the personnel Evergrande hoped to be stationed in FF could not be sent in.Previously, Evergrande Health announced that it plans to nominate Xia Haijun and Shi Shouming as the chairman and director of Smart King respectively, and the original shareholders have 5 board seats.However, as of now, Xia Haijun and Shi Shouming of Evergrande Fang have not participated in the daily management of Smart King.
The above-mentioned person familiar with the matter also said that Jia Yueting, who had already paid 800 million U.S. dollars in financing from Evergrande, was given priority to repaying debts and was not used to promote specific projects, while FF argued that the funds were insufficient.In June this year, a FF insider told Caixin that about US$100 million of Evergrande’s initial investment was used to repay debts.After the financial crisis in the LeTV system, FF's research and development work was interrupted for a while, and it also owed money to multiple suppliers. FF was sued by multiple suppliers in the United States.
Evergrande Health announced that Season Smart has hired a team of international lawyers.The above-mentioned person close to Evergrande Group said that Evergrande does not think it has breached the contract.Even if Evergrande wants to withdraw, the previous payment of 800 million US dollars cannot be wasted.
On August 14 this year, after a long period of silence, Jia Yueting's car-making project once again gained momentum in China.The above-mentioned person close to Evergrande said that Evergrande and FF have their own division of labor, and Evergrande is responsible for the promotion of the Chinese market.Evergrande Faraday Future Smart Vehicle (China) Co., Ltd. (hereinafter referred to as FF China) was incorporated on August 7 with a registered capital of 2 billion yuan.The company is the operational headquarters of FF.Yuan Zhongrong, the former chairman of GAC Toyota, became the president.
FF China has an ambitious goal. According to Evergrande Health’s announcement, FF’s goal is to reach an annual production capacity of 5 million vehicles in ten years, which is six times the national production of new energy vehicles in 2017.
At present, Evergrande is actively deploying the automobile business.On September 23, Evergrande Group announced the signing of a strategic cooperation agreement with Sun Guangxin, the richest man in Xinjiang, and his holding Guanghui Group.Evergrande will obtain 40.964% equity of Guanghui Group through acquisition and capital increase, with a total consideration of RMB 14.49 billion.An important business segment of CGA Group is CGA Auto, which is the largest car dealer in China.
FF's current plan is to start mass production at the leased Hanford plant in California, USA, which is designed to have an annual production capacity of about 10,000 vehicles.■
