BEIJING/HONG KONG (Reuters) -China Evergrande New Energy Vehicle Group (NEV) shares jumped nearly 50% on Tuesday after the electric vehicle unit of cash-strapped property firm China Evergrande Group announced a $3.2 billion plan to reduce debt and stay afloat.
The plan unveiled late on Monday includes a new share sale worth nearly $500 million to Dubai-based mobility firm NWTN, which will take a 27.5% stake in Evergrande NEV.
The overall package also includes a debt-for-equity swap of HK$20.89 billion ($2.7 billion) with its key creditors -- China Evergrande, its founder Hui Ka Yan, and his unit Xin Xin (BVI) Ltd, among others.
"The NEV Group will face the risk of discontinuation of business without access to a new round of significant funding," Evergrande said in a statement.
It said the fresh funding from NWTN would help the automaker improve its financial performance, while the strategic investor would bring its business and operational support to the company.
Last month, Evergrande NEV posted its long overdue financial results and said a combined net loss for 2021 and 2022 amounted to nearly $10 billion.
The electric vehicle maker has been under pressure since its parent group descended into a debt crisis in mid-2021, and warned in March it might have to wind up operations unless it obtained new funding.
Concerns about China's fragile property market have deepened this month, as the country's largest private real estate developer Country Garden missed coupon payments, flagged a loss of up to $7.6 billion for the first half, and sought to delay payment on a maturing bond.
The NWTN investment, pending regulatory approvals and completion of the debt conversion package, will also give the Dubai firm the right to nominate a majority of Evergrande NEV's board.
NWTN, listed in the U.S. market, is working on several EVs but has yet to begin mass production, according to its 2022 annual report published in May.
The company has been preparing a manufacturing base in the eastern Chinese city of Jinhua and an assembly facility in Abu Dhabi.
After the deal is completed, China Evergrande's stake in the unit will be diluted to 46.86% and the automaker would cease to be a non-wholly owned unit of Evergrande.
Shares in Evergrande NEV jumped as much as 47% on Tuesday before paring down its gain to around 2%.
($1 = 7.8216 Hong Kong dollars)