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Nissan Might Hit Another Stumbling Block Over Sales Of Battery Unit

|Includes: Nissan Motor Co., Ltd. ADR (NSANY)
Summary

July 2018, Nissan Motor Co. ("Nissan") called off a potential $1 billion sales of its battery unit, Automotive Energy Supply Corporation ("AESC").

On 3 August 2018, Nissan entered into a definitive agreement to sell 75% stake of the above-mentioned business unit to the owner of Envision Energy International ("Envision"), Lei Zhang ("Zhang").

However, there are questions concerning the funding of the deal, which partially came out of the proceed of a $300 million bonds issued by Envision Energy International.

First and foremost, let us get the fact right.  Nissan is selling AESC to Zhang, not Envision. 

Most of the coverage on this particular transaction oversimplifies the details.  Envision is owned by Zhang.  Zhang enters into an agreement with Nissan to acquire AESC.  However, it does not imply AESC will definitely be part of Envision.  In fact, it might never be.

On the contrary, there is a question of whether it is appropriate for Envision to provide Zhang the $180 million loan, which is partially funded by the proceed from a $300 million bond issue due 2021.

In a conference call, the management justified the loan on the ground that some of the proceeds were allocated to debt refinancing and hence the loan to Zhang did not breach any of the bond covenants.

Let us revisit the fact: Envision is not a contracting party of the acquisition of AESC.  It was also confirmed in the above-mentioned conference call.

Fitch has already requested Envision to update its financials and hinted there might be a change in its rating.  Currently, Envision is rated BBB-.

Envision's loan to Zhang shall be repaid if the acquired business goes public through an initial public offering.  However, the loan can also be extended after the three years period, if it does not go according to the plan.

In addition, the proposed transaction between Zhang and Nissan has yet to be approved by The Committee on Foreign Investment in the United States ("CFIUS").

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in NSANY over the next 72 hours.