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Debt-ridden electric vehicle maker Faraday Future loses Zhuhai government as a crucial investor ahead of US listing

·4 min read

Electric vehicle (EV) company Faraday Future failed to secure a crucial government investor ahead of its public listing in the United States, potentially crimping the debt-ridden carmaker's expansion plans.

The government of Zhuhai - which hopes to lure Faraday to set up a base in the city - has had to pull its US$175 million investment as part of a private placement in a special purpose acquisition company (SPAC), sources confirmed on Thursday.

The local government investment was pulled at the last minute because of Beijing's strict foreign-exchange regulations, but made up by other investors in the blank-cheque company, which agreed to acquire Faraday in January and take it public on Nasdaq.

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According to Chinese financial magazine Caixin, the EV start-up badly wanted the local government as a shareholder - behind the invested cash - because it has clout when it comes to things like land allocation, fundraising and sales promotions.

Faraday, formerly controlled by the fallen Chinese tycoon Jia Yueting, received US$1 billion from some 30 investors in China, the United States and Europe in a SPAC deal that could provide it much needed capital and support production of the FF91. The luxury car was first unveiled by the company in 2017 and is not expected to begin production until next summer.

SPACs refer to shell companies that raise funds in an initial public offering with the aim of buying a private company and taking it public. For the company being acquired, the merger is an alternative way to go public over a traditional listing.

Faraday is set to begin trading in the US on Thursday night after agreeing to a merger with Property Solutions Acquisition Corp (PSAC), a SPAC led by Jordan Vogel, the co-founder of Benchmark Real Estate Group.

Sources with knowledge of the fundraising said the Zhuhai government was among a group of key investors set to pump cash into Faraday. The local authority had hoped Faraday's technologies and carmaking assets could be better used to help form a new industry chain all the way from research and development and assembly to car part production and construction of charging infrastructure.

On July 15, Faraday said in a filing to the US Securities and Exchange Commission that a "tier one" investor was not able to obtain approval to convert sufficient Chinese yuan into US dollars in time to purchase shares worth US$175 million in the private placement. The shares were assigned to other "mutually agreed strategic and financial investors without any regulatory approval requirement", according to the regulatory filing.

Faraday did not respond to a request for comment from the Post on Thursday.

It said in the filing that Faraday was still in discussions with the tier one investor about the contemplated transaction.

Caixin said on Thursday that the investor referred to was the Zhuhai government.

"For EV start-ups, government support and strong incentives such as cheap land and lower taxes are much needed because many of them cannot survive in the early stages," said Ding Haifeng, a consultant at Shanghai-based financial advisory firm Integrity. "Without Zhuhai as a shareholder, it will be difficult for Faraday to secure a strong foothold in China."

Zhejiang Geely Holding Group, controlled by billionaire Li Shufu, was also among the anchor investors in the private investment, according to sources.

Beijing has unveiled draft rules under which it would review any foreign listings by technology platform companies that possess the data of at least 1 million users.

That followed a probe into ride-hailing operator Didi Chuxing days after its US$4.4 billion New York stock offering.

By 2025, one in every four new cars, or 660 million units hitting the roads of mainland China will be powered by electric batteries, according to a forecast by UBS.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.