Rashomon behind the outbreak of the FF control struggle
During the verbal battle between you and me, and between you and me, Hengda and Jia Yueting provoked a conflict over the control of Faraday's future (hereinafter referred to as "FF").
On October 7th, the contradiction between Hengda and Jia Yueting was made public. In the past, allies had been in court less than four months after their cooperation, causing public uproar. Hengda Health Industry Group Limited (00708.HK, hereinafter referred to as "Hengda Health") issued a notice pointing out that Jia Yueting filed arbitration with the Hong Kong International Arbitration Center, demanding that Hengda be deprived of its financing consent and terminated all cooperation agreements because Hengda failed to pay the supplementary agreement of 700 million US dollars. Hengda thinks that payment has not reached the relevant conditions. At the same time, Evergrande also said that Jia Yueting used the right of majority of directors to manipulate the joint venture.
A person close to Evergrande told China Business Daily that Evergrande, as the largest shareholder of FF, must have certain control in financing. "If FF does not have this right to finance at will, it will dilute Evergrande's shares." The person close to Evergrande also said that in view of Jia Yueting's past breach of contract, Evergrande also had concerns, so the contract set a payment condition, meet the conditions will pay.
Several lawyers interviewed said that the focus of the dispute was on the nature of the supplementary agreement, the specific content of the agreement, and the performance of the parties to the agreement. But whether the two sides are right or wrong should be based on the formal contract text, and ultimately be decided by the arbitration agency.
Intensification of contradictions
On Oct. 7, Evergrande Health announced that the original shareholder of FF (FF Top Holding Ltd., the actual controller is Jia Yueting) used his right to control Smart King from a majority of the directors'seats in Smart King. The supplementary agreement of $700 million would require Evergrande to pay if it failed to meet the conditions. On Oct. 3, Evergrande filed a proposal with the Hong Kong International Arbitration Center for Zhong. The ruling demands that Shi Ying, a subsidiary of Evergrande, be deprived of his consent to financing as a shareholder, and that all agreements be terminated, and that Shi Ying be deprived of his rights under the relevant agreements.
The following day, the FF side quickly issued a statement responding: "Recently, the investor Hengda unilaterally entered into a number of defaults on the terms of the investment contract signed with the FF parent company earlier. During the period, after many friendly negotiations and strict urging, Hengda still refused to implement the contract without legal basis, especially failed to comply on time. Conduct related financial commitments to FF. "
As the incident continued to ferment, people close to Jia Yueting said on the evening of October 10, "The supplementary agreement signed on July 18, Hengda asked to take over most of FF China's management power, the company renamed Hengda Faraday future, Jia resigned as director of Smart King and so on. All of Jia Yueting's parties have been executed. While the other side enjoys the rights and interests, the other side is dragging no money.
In June 25th, Evergrande announced that it had a 100% stake in the acquisition of HK $6 billion 747 million. Earlier, on November 30, 2017, Shi Ying signed a merger and subscription agreement with FF's former shareholders, and invested $2 billion over three years to acquire a 45% stake in Smart King, the joint venture.
According to the agreement, Evergrande will have to pay $800 million by the end of 2018, $600 million by 2019 and $600 million by 2020. In May 25, 2018, Hengda had paid 800 million US dollars ahead of the end of 2018.
However, unlike the $700 million proposed by Evergrande in its announcement, for the new payment, FF indicated that Evergrande had offered to sign a supplementary Amendment Agreement (tripartite agreement) to the original investment agreement in July 2018 after paying the first $800 million, and agreed to provide further funding to FF before the original contract date. Protection includes the payment of US $500 million in the remaining $1 billion 200 million in 2018.
The FF explained that no one, including its global CEO, Jia Yueting, had manipulated the board of directors to reach a corresponding supplementary agreement. FF pointed out that although FF and founder Jia Yueting had fulfilled all the terms of payment required in the tripartite agreement signed by investors in July 2018, Evergrande failed to meet its commitment to pay any additional funds to FF except for the first investment of US$800 million, and instead attempted to gain control over all the IPs of FF China and FF. Ownership. In the meantime, Hengda also prevented FF from accepting any direct financing from other sources.
In addition, FF stressed that "Evergrande failed to fulfill its intentions and subsequently refused to pay the funds it had agreed to pay" was the only reason for the termination of all agreements. FF believes that Evergrande should not refuse to pay the funds on the one hand, on the other hand, enjoy the rights and interests after the supplementary agreement takes effect, including taking over most of FF China's management rights.
This matter or enter the arbitration stage. As for the time of arbitration, one lawyer, who declined to be named, said that the rules of each arbitration body would have an overall period of time, but would be judged by the complexity of the case, and that there were more influential matters, so there was no clear time limit.
According to our reporter on the official website of the Hong Kong International Arbitration Center, the median length of arbitration is 14.3 months (average: 16.2 months); the median and average length of arbitration in summary arbitration proceedings are 8.1 months; and the median and average length of arbitration in emergency arbitration proceedings are 14 days.
Hidden danger in AB share mode
Although Hengda is the largest shareholder of the joint venture company, the company's control is in the hands of FF's original shareholders.
When the joint venture company Smart King was established, the cash-strapped FF shareholders acquired 33% of Smart King's equity by investing in the technical assets and business owned by FF Group. The remaining 22% of the equity was reserved to be issued to employees under the equity incentive scheme.
According to the agreement, Evergrande has one vote for each share of the joint venture company in terms of the distribution of voting rights at the shareholders'meeting, while under the normal operation of the joint venture company, FF original shareholders have 10 votes for each share. According to the equity incentive plan, the allotment of employees' shares does not have any voting rights. In the same way, the voting rights of FF's original shareholders obviously overwhelmed the AB.
In an interview, a lawyer pointed out that the different rights of the same share model prone to management dictatorship, ignoring or even ignoring the rights and interests of shareholders, not conducive to the protection of shareholders'interests, shareholders may face the moral hazards of management.
However, Hengda is not entirely at a disadvantage in voting rights, and even reverses the situation. The acquisition agreement shows that under the terms of the shareholder agreement of the joint venture company, when the management fails to perform its duties, the original shareholders'voting rights will be returned to Hengda.
In fact, Evergrande is at a disadvantage in FF control, as evidenced by a small number of board seats, which is the main basis for its announcement accusing Jia of manipulating the joint venture.
A person familiar with the matter disclosed to our reporter that, apart from a financial officer, Hengda has no other permanent staff in the United States. In its June 25 acquisition announcement, Evergrande Health said it would appoint two directors to Smart King, one of whom would be chairman of the joint venture and would nominate Xia Haijun as chairman of Smart King. According to our reporter, Smart King has seven directors, and the directors appointed by Evergrande are Xia Haijun and Peng Jianjun. People close to Evergrande also confirm that Xia Haijun and Peng Jianjun are indeed on the board of Smart King. According to official public information, Xia Haijun is president and chairman of FF of Hengda Group, while Peng Jianjun is vice president of Hengda High-tech Group, vice chairman of Hengda Health and chairman of Hengda Faraday Future Intelligent Automobile (China) Group.
After the contradiction is public, the speech of Hengda to seize control of FF is boiling. "The essence of contradiction is the contention of FF control right now. "A person close to Jia Yueting told this reporter," Hengda step by step, Jia Yueting has been friendly negotiations, trying to resolve through negotiations, but the effect is not good, there is no way to put forward arbitration.
The above supplementary agreement for detonating contradictions is stated by both sides in the announcement or statement. "In fact, Evergrande has come to sign a tripartite agreement, which includes a request for the majority of FF China's management rights in exchange for an advance payment of $700 million, $500 million in 2018 and $200 million in early 2019," said a person close to Jia Yueting. Informed sources close to Hengda told our reporter that the relevant statements were based on the announcement.
From the public statements of both sides, FF and Evergrande obviously have different views on whether the terms of payment are reached. Close to Hengda insider told this reporter: "payment conditions are not yet open."
As for the restriction of financing FF said, people close to Evergrande pointed out that when the two sides signed the relevant agreement was very clear, Evergrande, as the largest shareholder, must have a certain degree of control in financing, "Without this right, FF will be free to finance, will dilute Evergrande shares." At the same time, close to Evergrande insiders particularly stressed: "In view of Jia Yueting's previous defaults, Evergrande also has concerns, so the contract set the terms of payment, meet the conditions will pay."
How will Hengda respond to the pressure from Jia Yue Ting? A person close to Evergrande said: "This matter, according to the arbitration results can know the next trend."
Parking plan to promote doubt
As a matter of fact, FF chose to go to court with Hengda, and it has nothing to do with FF 91's target of mass production in 2019.
In a statement, FF pointed out that in order to achieve FF 91's production delivery in 2019, Evergrande has a comprehensive and in-depth understanding of the supplementary agreement to pay the remaining amount of financing in advance in 2018, including why and when these funds are needed.
Despite the outbreak of contradictions due to funds, but Evergrande has brought huge capital into the ownership, FF manufacturing process has been accelerating. Our reporter learned from Jia Yueting's personal authentication micro-blog that at the end of August, FF 91's first pre-production vehicle officially went offline in Hanford, USA. This is also the latest micro-blog information he has sent. In addition, FF official micro-blog released a statement the day after the first FF 91 pre-production vehicle for the second stage of testing information.
On the other hand, Hengda's related actions in China are also developing vigorously.
In mid August, Evergrande Faraday's future intelligent vehicle (China) Group officially unveiled in Guangzhou. The company's registered capital of up to $2 billion will be fully responsible for FF's technology development in China and all production and operation management.
At that time, Xia Haijun announced that five R&D and production bases would be built in East, West, South, North and Central China in the next decade, with an annual production capacity of 5 million vehicles planned after 10 years.
However, at the unveiling ceremony, our reporter did not see any people from Jia Yueting on the spot or on the list of senior executives provided by the activists.
After the contradiction between the two major shareholders is stimulated, the impact of the FF which is promoting mass production will be the focus of heated discussion. The lawyer, who declined to be named, said it was a dispute between shareholders and the management stability involved in the company's operations.
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