Faraday Future seeks to scrap stake sale to Evergrande unit

October 08, 2018 14:01
Faraday Future's Jia Yueting (R) is accused of trying to break an investment deal with an entity controlled by Chinese billionaire Xu Jiayin. Photos: HKEJ, Reuters

Electric car startup Faraday Future, founded by tech entrepreneur Jia Yueting, is seeking arbitration to back out of a deal to sell a 45 percent stake to Hong Kong-listed Evergrande Health, according to an announcement from Evergrande Health.

Evergrande Health is a healthcare subsidiary under Chinese billionaire Xu Jiayin's real estate group Evergrande.

In June, Evergrande Health announced it would buy 45 percent of Faraday Future with an investment of over US$860 million, a financial lifeline for the Los Angeles-based venture that is battling for survival.

Evergrande said it had agreed to buy BVI-registered Season Smart, owner of 45 percent of Faraday Future, for about US$800 million. It also agreed to invest a further US$1.2 billion in two installments of US$600 million each, by the end of 2019 and 2020 respectively.

In a filing to the Hong Kong stock exchange on Sunday, Evergrande said it had already paid the US$800 million, under the agreement, to Faraday Future in May. Further, Evergrande said that it had inked a supplemental agreement in July to pay Faraday Future another US$700 million, at the request of Jia, Faraday Future's founder and CEO, after the startup had spent the initial investment of US$800 million.

However, Evergrande said Jia used "manipulating" tactics to persuade the board of directors who oversaw the deal to advance the US$700 million investment. And Jia had commenced arbitration at the Hong Kong International Arbitration Centre last Wednesday against Evergrande, saying “payment conditions [of the deal] were not fulfilled.”

It said in the filing that Jia was seeking to deprive Evergrande, as the new owner of Season Smart, of any right as a shareholder in respect of Faraday Future’s future financing plans, and to terminate all other agreements.

Evergrande said it will take “all necessary actions” to protect its continuing rights under the relevant agreements.

Shares of Evergrande Health, which had been suspended since Oct. 4, resumed trading on Monday. The stock plunged as much as 36 percent in early deals. As of 10:30 am, the shares were changing hands at HK$9.05, down 13 percent from the level prior to suspension.

Faraday Future, which was founded in 2014, has been taking aim at Tesla with its flagship car, the FF91, an American-made ultra-premium electric vehicle that was envisioned to be fully autonomous. However, the firm was caught up in a financial crisis and also found itself plagued by other problems including an executive exodus and CEO troubles.

In 2017, the cash-strapped company halted construction of a manufacturing plant in Las Vegas, Nevada. It also saw the departure of multiple executives last year. Moreover, it had trouble paying suppliers, and had reportedly owed at least US$100 million at the start of 2018, according to a report by tech media website The Verge.

Jia, also the founder of troubled Chinese tech conglomerate LeEco, is currently living in the United States. Once touting businesses ranging from smartphones, electric cars, and sports broadcasting, Jia was added to a national online blacklist of credit defaulters, maintained by China’s top court. He was placed on the blacklist over unpaid debt totaling US$72 million, with his assets frozen in the country.

Added to the blacklist, Jia can be blocked from flights and high-speed trains in the country, and even from making big purchases.

Sources told The Verge that Faraday Future has struggled after having spent the first US$800 million. Some vendors have not been paid, and layoffs were said to be in consideration.

In August, the electric carmaker announced that it had started full vehicle assembly of the FF91 at its US production base, while claiming that it had set up operating headquarters in China, Reuters reported.

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