My Take On The Press Release

Yesterday NEVS went public with a plan to exit reconstruction. The core of the plan is that NEVS fully pays its debt to creditors with claims below SEK 500.000 while creditors with higher claims are paid half. Payment shall be executed in two steps. The first one sixty days after the agreement and the second one six months after. This is not really a new plan, they suggested this already six months ago but it was turned down by the creditors.

This of course turns up a few questions. Here is the most obvious ones for me.

– Why are they trying to exit reconstruction now?
In the press release they state that being in reconstruction makes it harder to negotiate with the two OEMs. There is of course quite a bit of truth in that. In reconstruction they are overlooked by the reconstructor who can have a lot of say in how things are done. This may not nessesarily ease negotiations with a future investor, of course depending on how that reconstructor sees things and how well he knows the business. Another point is that this extended reconstruction period is over soon. For another extension NEVS needs the approval of the creditors. If you are not 100% confident to get that you might look for a way out that keeps you alive. Which one is the bigger reason here – I don’t know. But I think that both things playing a role here.

– How does being in reconstruction affect negotiations?
Besides the issue I mentioned above it may also be that the investor wants NEVS to clean up their debt before they are willing to step in. From the point of an investor you want the money you bring in to start future business rather than to cover old claims. Any investment needed to start up development and then later production of cars is big enough and you won’t to add even more on that. It would only raise the risk level and push the point where you get your return on investment further away.

– Why should creditors agree to the cut of their claims?
Having run my own businesses ever since I’d give a simple answer: because in most cases the amount you are offered is more than you would get from a bankrupcy. It is of course harder to agree to the plan for those with bigger claims. Plus, you get only a part of that money now and the rest in half a year. It requires quite a bit of confidence, especially given the experience many of those suppliers have made with Saab under various owners in the past years. But then – even only getting that first part might be the most you can get out of it. And for smaller creitors getting any money might be the key to survival. The tough thing is tht you have to convince them all. To sum it up – I believe there is a fair chance NEVS can get this done.
A backlash in this is that it might be even more difficult to work with those suppliers in the future. But then, this is not the greatest worry at the moment.

– Would creditors agree to extending the reconstruction?
Again, it’s convincing them all. Experiences from the past are not favourable. So with every extension it gets harder to get them all to agree. It’s maybe as hard as getting everybody to agree to a payment plan with the difference that you don’t have money to offer here.

– Where does the money for the payment plan come from?
Most likely it’s Kai-Johan through NMEH who is adding more millions to the big amount he already put into NEVS to keep it alive.

– Is the exit of reconstruction the key to Mahindra’s entry?
No. Well, to put it into a picture it maybe opens one of three locks on that door. In my impression the major obstacle still are the name rights that are tied to certain demands by Saab AB. I went into detail about that before so I won’t do it here again.

– What happens if neither reconstruction nor the payment plan are approved?
I hate to say but that would lead into bankrupcy. But even this must not be the end. If an administrator still believes there is some future in this he could run the profitable parts of the business so they can generate cash tp pay of the debt and at best in some future day release that company from bankrupcy. And there are parts in NEVS that still can generate cash. The real estate and production line if you are able to manufacture for other companies for example. Or simply rent out some parts to other companies. There is also the lab that can be used by others. If the development of the phoenix or even a complete car is possible under such circumstances is hard to say. It’s all about the plan and how much the administrator believes in it.

But then, the latter is nothing I really want to deal with today. Also, I do not want to sound to pessimistic, rather realistic. I still believe that there is a chance for NEVS but it is a tough road. Still, from my point of view NEVS are doing all they can do to bring this to a positive outcome. Let’s hope some more things fall in place.

saabyurk
Member
1 year 7 months ago

Thank you for the insights.

Romac
Member
1 year 7 months ago

“NEVS fully pays its debt to creditors with claims below SEK 500.000 while creditors with higher claims are paid half.” – i.e. if you are owed more than SEK 500.000 you will get 500.000 plus half the rest?

aus715
Member
1 year 7 months ago

Nice reflection Till, and thanks. I wonder what a decent Q and A session with someone who is close to the action would provide at this point. There must be a reliable source, even from NEVS(?), who might provide some much needed clarity without compromising negotiations.

Phillip
Guest
1 year 7 months ago

Yes that would be great.

Trued
Member
1 year 7 months ago

Kai-Johan´s “wealth” is from what I know loans from chinese creditors? Guess he is under hard press to save as much as possible. The chinese government can be hard on speculation with money from the people.

Angelo V.
Member
1 year 7 months ago
I guess what I don’t understand is if KJJ really had things together a few years ago—and this NEVS venture overwhelmed him—-or if he was all hype and no substance to begin with. When NEVS was first announced, this guy was built up as some sort of super executive—the term “deep pockets” was tossed around like this guy was a Rockefeller. He was practically being heralded as Man of the Year and a Saab savior—smart, rich, major high level Chinese connections out the ying-yang and we were all popping champagne bottles to celebrate. What happened? The honeymoon didn’t last long.… Read more »
scand
Member
1 year 7 months ago

He’s wealthy, he’s smart, and he had a dream. A dream that probably made sense on paper.

But at the end of the day, no matter how wealthy he ( or the funding entity ) is, the bottom line is that if you are losing money hand over fist, and that situation isn’t changing, then there is always a finite limit to the funding.

I have seen the same scenario time and time again, no matter what the deep pocketed platitudes (“trust us, we are well funded”) were at the front end of the project.

jond
Member
1 year 7 months ago
He seems to be a star performer in that he has been able to persuade those controlling public sector surpluses in China to invest in cutting-edge technology and he seems to have a track record of making a success of this. So it would be natural for him to have taken a view on the likeliood of obtaining further finance to develop the electric car project as required. But then came the crackdown on curruption, which has severely shifted the risk/reward ratio for industrial fund managers in China and that seems to have pulled the rug out from under his… Read more »
Dagen Runt
Member
1 year 7 months ago
My guess is that NEVS’ motive to get off the reconstruction comes from fear of not being granted another extension – be it on grounds of not moving along as planned or because of suppliers starting to jump ship. The bit about suppliers having good chances of signing new contracts with future NEVS is pure spin and bs. There obviously will be a longish break in vehicle production even if things go as planned. If all goes to hell, KJJ stands to lose serious money anyway. This offer towards the creditors is a smallish cost for him to keep hope… Read more »
scand
Member
1 year 7 months ago
My thoughts; 1. They are trying to lump 100% of the loss onto a few bigger creditors. While this would increase the chances of the smaller creditors voting ‘yes’, it’s against pretty much all bankrupcy negotiations and rules: that you treat all creditors equally. I cannot see the bigger creditors agreeing. 2. They are making promises to pay, 60 days and 6 months into the future. They have made promises before, and haven’t lived up to them. There is not a solid deal on the table to fund it, so where is the money coming from? Is it ‘back stopped’… Read more »
Marque
Member
1 year 7 months ago

“NEVS states that KJJ has solely been funding the reconstruction, as if that was a generous thing to do. Well. That’s what company owners are supposed to do.”

I think it’s absolutely not that usual to do so. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company. That said, I don’t know the actual numbers ie. the amount of the investment correlated to the credit claims etc.

scand
Member
1 year 7 months ago
Totally correct. He (or any other shareholder) isn’t liable for the debts, however NEVS had made a payment offer based on….what? It says it does not have a signed deal with any new investor – it said so. What happens if they exit reconstruction – based on the payment promises….they make the first payment. Then announce , sorry we can’t make a deal with anyone, so we have decided to asset strip it, sell bits to china. No one can do anything, because at that point they wouldn’t be in default (up to the six months) . I’m not saying… Read more »
Paul Willis
Member
1 year 7 months ago
The only way the creditors would agree to this if they believe it will provide them more than what they could get now in a liquidation. They may be willing to bank on the fact that KJJ thinks he can get more by keeping NEVS alive for a deal with the OEM(s), which will benefit the creditors since he will be pumping in more money. Its a pure math equation for the creditors at this point. It may be better in the near term to be patient and let this run for another 60 days to see what happens. In… Read more »
Doug R.
Guest
1 year 7 months ago

Paul that is a very good point.

Paul Willis
Member
1 year 7 months ago
The letter from the Hamilton law firm makes very clear the motivations of the parties in the proposal for creditors. As I suspected, the letter makes the point to the creditors that the proposal will provide them more funds than a straight bankruptcy/liquidation, so they have an interest in accepting it. Further, the letter indicates that the NEVS owner, NMEH, has converted the majority of its loans to NEVS into shareholder contributions, which very likely means that there is no way for NMEH to recoup those funds other than a sale to a new investor. Finally, the letter makes the… Read more »
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