China Evergrande Group's investment in electric carmaker Faraday Future could be coming to an end with signs of a souring relationship between the two.
Property developer China Evergrande, through its Evergrande Health Industry Group Ltd. subsidiary, agreed to acquire Season Smart Ltd., which controls the electric car startup, in June, with plans to invest a total of HK$6.75 billion.
Season Smart owns a 45% stake in the Smart King Ltd. joint venture for Faraday Future, with the original shareholder owning a 33% stake. Season Smart initially invested US$800 million in the venture, with another US$1.2 billion to be invested by the end of 2020.
In an Oct. 7 filing, Evergrande Health said the original shareholder, FF Top Holding Ltd., said in July that the US$800 million investment from Season Smart had already been spent and asked for another sum of US$700 million. A supplemental agreement was then signed for the new payment, subject to the fulfillment of certain conditions.
Evergrande Health alleges that the original shareholder requested the new funding without having fulfilled the agreed payment conditions and then commenced arbitration at the Hong Kong International Arbitration Centre on Oct. 3 to deprive Season Smart of its consent right as a shareholder and to terminate all agreements.
Evergrande Health maintains that Season Smart has fulfilled its obligations under the relevant agreements and that the arbitration commenced by Smart King has "severely damaged" Season Smart's rights and interests, as well as those of its shareholder. Season Smart has enlisted an international legal team and intends to take all necessary actions to protect its interests and those of its shareholders, according to the filing.
Faraday Future shot back Oct. 8 that Evergrande failed to deliver a promised US$500 million payment in 2018, as part of its planned $1.2 billion total, and that it is holding back payments in attempts "to gain control and ownership" of the startup. Faraday Future said the investor had agreed to make the early payments with a full understanding that they were needed in order to achieve production and delivery targets in 2019. It said neither Faraday Future nor its founder and global CEO, Jia Yueting, manipulated Evergrande's board into the payment agreements.
Faraday Future said it is only trying to exit the deal with Evergrande due to the latter's withholding of funding. It also accused Evergrande of preventing Faraday Future from accepting alternative financing or investments.
An Oct. 10 report by Mingtiandi added that Jia Yueting has also had a contentious relationship with Sunac China Holdings Ltd., another property developer, after Sunac invested 15 billion yuan in technology conglomerate LeEco Group. Sunac China said in late August that it is no longer considering business diversification after the failed LeEco investment. According to the report, Sunac China founder Sun Hongbin noted a loss equivalent of US$2.6 billion in the LeEco investment.
As of Oct. 10, US$1 was equivalent to 6.92 yuan.