HARMONY AUTO plans to sell 45% equity of its overseas new energy vehicle business to controlling shareholder Feng Changge for 330 million yuan

According to the news from Zhitong Finance APP, HARMONY AUTO (03836) announced that the company (as the seller), EGL (a company wholly owned by Feng Changge, as the buyer), and Feng Changge (as the guarantor of the buyer) signed an agreement after the trading session on May 23, 2025. According to this agreement (including), the company conditionally agrees to sell to EGL: (i) the shares for sale, accounting for 45% of the restructured capital of the selling company (iCar Group Limited), at a price of RMB 250 million for the shares for sale; and (ii) the loans for sale, accounting for 45% of the convertible bonds issued by the selling company, at a price of RMB 80 million for the loans for sale. The total price of RMB 330 million will be fully offset against the total principal amount of RMB 330 million owed by the company to EGL at the time of completion of the sale. To facilitate the sale and to separate the selling group's responsibilities and liabilities regarding the priority loans after the completion of the sale, the company plans to implement a capital restructuring as a prerequisite for the completion of the sale, mainly to (a) increase the total paid-up capital of the selling company to approximately RMB 555.6 million; (b) convert part of the shareholder loans of approximately RMB 385.4 million into priority loans; and (c) convert the remaining shareholder loans of approximately RMB 177.8 million into convertible bonds to be issued by the selling company to the company. As of the date of this announcement, the selling group owns 42 subsidiaries and is engaged in the distribution of new energy vehicles and providing after-sales services in overseas markets for the selling company. The group began operating its overseas new energy vehicle business in 2023. The selling group has successfully collaborated with BYD Company Limited (one of China's leading automobile manufacturers) to establish distribution networks and service centers in multiple regions outside mainland China, distributing two new energy vehicle brands (namely BYD and Tengshi) and providing after-sales services for them. As of April 30, 2025, the selling group has 45 4S centers, 34 showrooms, and 4 service centers in Hong Kong, Cambodia, the Philippines, Singapore, Japan, Indonesia, Thailand, Malaysia, Australia, the UK, France, and Poland. As of the date of this announcement, the selling group is the exclusive first-level authorized dealer of BYD new energy vehicles in Hong Kong and the authorized national dealer in Cambodia. The rapid growth of the overseas new energy vehicle market has brought significant business opportunities, but it also requires substantial operating capital and upfront investment to enter the market, including establishing distribution and after-sales networks. To meet these needs, in 2023, the company discussed with Feng Changge about jointly investing in the development of overseas new energy vehicle business through the selling group. The contracting parties agreed that the joint investment will be funded by the company and Feng Changge at 55% and 45%, respectively. To promote early market entry and seize first-mover advantages, Feng Changge initially provided funding in the form of CS loans to enhance the group's operating capital situation and support the rapid launch of the selling group's business. A formal joint investment structure plan will be implemented in a later stage. After a full year of operation, it is evident that the long-term development and expansion of the selling group's overseas new energy vehicle business require continuous and substantial operating capital and investment, especially for the procurement of new energy vehicle inventory and the establishment of distribution networks and service centers in multiple overseas regions and markets Therefore, in light of the funding needs, the company and Feng Changge have agreed to continue implementing a joint investment structure to establish a clear framework for future fundraising, operational responsibilities, and profit and loss sharing. As the divested group is still in a growth phase, and due to the initial operating and market penetration costs, achieving profitability may take time. The company believes that reducing its equity stake in the divested group to diversify and mitigate the group's financial risks is a prudent move. This strategic partnership is expected to provide the divested group with financial flexibility and operational resilience, enabling it to better respond to market challenges and pursue long-term growth