Jan 01, 2019 06:00 AM

Faraday Future Founder Settles Investment Dispute with Evergrande

Faraday Future's FF91 prototype electric vehicle is shown during a press event for CES 2017 in Las Vegas. Photo: VCG
Faraday Future's FF91 prototype electric vehicle is shown during a press event for CES 2017 in Las Vegas. Photo: VCG

Chinese entrepreneur Jia Yueting settled his months-long dispute over control of electric-car startup Faraday Future with real estate giant Evergrande Group on the last day of 2018.

The two parties agreed to withdraw and waive all current litigation and arbitration proceedings. They entered into a restructuring agreement on Evergrande’s investment in the cash-strapped Faraday, according to a filing Monday with the Hong Kong Stock Exchange.

The settlement came as Jia struggled to secure new funding for Faraday while wrestling for control of his company with Evergrande.

Jia made the agreement to keep Faraday afloat, people close to the matter said. Faraday is on the brink of collapse after the company furloughed most of its workers since October. The company has struggled to mass-produce the FF91, its first electric car model, amid financial woes. It had planned to deliver the first batch of cars in the first quarter of 2019.

Faraday said in a statement that the company will continue to pursue business in the U.S. and in China. But any such efforts in China could face difficulties as creditors have been hounding Jia for unpaid debts owned by LeEco, the one-time star Chinese tech company that Jia founded. Jia has been blacklisted as a debt defaulter by Chinese regulators for failing to repay about 480 million yuan ($69.9 million) owed by LeEco.

As a result of the settlement, Jia agreed to lower the valuation of Faraday and give up his control of Faraday’s assets in China, but he retained an option to buy back shares owned by Evergrande within 5 years. The restructuring agreement valued Faraday at less than $1.9 billion, compared with the $4.4 billion valuation under their original investment agreement.

Late last year, Evergrande’s Hong Kong-listed health-care unit agreed to invest $2 billion over three years and take a 45% stake in Smart King Ltd., which controls Faraday.

Evergrande Health Industry Group Ltd. has so far invested $800 million in Faraday. The company committed an additional $1.2 billion in two installments of $600 million each in 2019 and 2020.

But the investment deal fell into dispute in August. Evergrande Health said Faraday manipulated it into paying $700 million ahead of schedule, while Faraday accused Evergrande of deliberately delaying its promised investment and trying to “gain control and ownership” over Faraday’s China business and all of the automaker’s intellectual property.

According to the restructuring agreement, Evergrande will no longer be required to make additional investments in Smart King. Its current investment is restructured to ownership of 32% of the preference shares in Smart King and 100% of the shares in Evergrande FF Holding (Hong Kong) Ltd., a wholly owned subsidiary of Smart King.

Evergrande FF Holding (Hong Kong) owns Faraday’s assets in China, including 98.8 acres of land in Guangzhou that Faraday bought in April for 364.1 million yuan to build a car assembly plant.

It’s not clear whether the company can still meet its production goal, but the settlement with Evergrande cleared the main obstacle Faraday faced in seeking outside funding.

As part of the settlement, Evergrande agreed to release its liens on Faraday’s assets, which would allow Faraday to obtain short-term asset-backed loans and equity or debt financing from other investors. Faraday said several investors have initiated due diligence on equity financing and it expects to make a breakthrough in debt financing as well.

Even though Evergrande gains control of Faraday’s China business, the Chinese company doesn’t have a concrete product yet. Faraday previously planned to make a simple-spec model, the FF81, in China. The model is still just a concept. Now with their relationship going sour, the FF81 project has also fallen apart.

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