EV Startup Faraday Future Restructures its $2 Billion Investment Deal With Evergrande
【Summary】Evergrande announced on Monday that it has agreed to restructure its $2 billion investment in electric vehicle startup Faraday Future (FF). Evergrande is FF’s main investor. As part of the new agreement, Evergrande will walk away with full control over Faraday Future’s efforts in China, and both sides will drop all ongoing litigation.
Evergrande announced on Monday that it has agreed to restructure its $2 billion investment in electric vehicle startup Faraday Future (FF). Evergrande is FF's main investor. As part of the new agreement, Evergrande will walk away with full control over Faraday Future's efforts in China, and both sides will drop all ongoing litigation against each other, according to a press release posted to the Hong Kong Stock Exchange.
Financially troubled Faraday barely made it through last year–surviving only by securing a last-minute $2 billion lifeline from Evergrande in Dec 2017 to stay afloat. Evergrande Health Industry Group is the healthcare division of Hong Kong-based real estate group Evergrande, one of the world's most valuable real estate companies.
Over the past several months, Faraday was forced to furlough most of its employees and shut down production after it could not pay its suppliers. The impending lawsuit and financial troubles led to a mass exodus of top executives at the company, including Faraday co-founder Nick Sampson, who said in Oct 2018 the company was "effectively insolvent."
In December 2017, FF announced its has secured $2 billion in funding from Evergrande to keep the company afloat. Evergrande agreed to invest the money in FF over the span of three years in exchange for a 45 percent share of FF stock, starting with an initial payment of $800 million which was made in Dec 2017.
The disbursement of funds was contingent on FF meeting agreed upon production goals for its the company's first vehicle the FF91, a high-tech, luxury electric SUV. The FF91 was first unveiled at CES 2017. The company says the SUV's electric powertrain produces 1,050 horsepower and reaches 0-60 mph in just 2.4 seconds, much quicker than any Tesla model.
Evergrande had accused Faraday of squandering the initial $800 million payment and was cut off from the remaining $1.2 billion it agreed to invest, putting the automaker in a dire financial situation as the case makes its way through arbitration in a Hong Kong court. As a result, Faraday was forced to stop development work on the FF91.
Faraday posted a letter on Twitter on Dec 4 explaining that the mandatory furloughs and layoffs were necessary as the company struggles to secure new funding, which it said at the time might take two or three months.
The Deal Between Faraday & Evergrande
In June 2018, Evergrande Health Industry Group announced the acquisition of Hong Kong-based Season Smart Limited for 6.746 billion HK dollars ($860 million). Season Smart Limited already had a deal in place with FF in a separate joint venture. Season Smart earlier offered a capital contribution of $2 billion to obtain a 45-percent stake in the between Faraday and Season Smart, but Evergrande Health now holds that stake with the acquisition of Season Smart.
The acquisition allowed Evergrande Health Industry Group to indirectly obtain a 45-percent stake in Smart King Limited, the joint venture (JV) previously established between Season Smart Limited and Faraday Future.
As reported by Reuters, Season Smart will now own 32 percent preference shares as part of the new agreement, down from the previous 45 percent, according to filings.
Faraday Denied Funding in July 2018
Evergrande said that Faraday demanded another $700 million from Season Smart in July after spending the initial investment of $800 million. Evergrande withheld the additional funding, claiming that Faraday wasted hundreds of millions of dollars, while Faraday insists that Evergrande has broken agreements to make payments to the company.
Faraday CEO Jia "YT" Yueting failed to convince the board of directors to approve the additional advance of $700 million for FF and he took the case to an arbitrator in Hong Kong. Faraday is blaming Evergrande for its current financial situation.
"Faraday Future is facing issues with its current funding because of Evergrande's failure to live up to its end of the bargain and make the payments it agreed to," the company wrote.
However, with the new restructuring agreement, Faraday Future is looking forward to resuming working on the FF91, which it hopes to have available later this year.
"FF is working to fully address the funding issues and fulfill its commitment of product delivery," the company said in its Twitter statement. "FF will continue to focus on final product delivery and maximize the interests of its shareholders, global suppliers and future users."
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