Failed merger leaves Apollo Future Mobility searching for direction

The NEV maker has launched a plan to raise HK$210 million, seeking to repay debt after its bid for new life by acquiring a struggling rival collapsed last year

Key Takeaways:

• Apollo Future Mobility is seeking to raise $27 million, and will allocate nearly half to repay debt and most of the rest for business development
• Revenue from its sale of jewelry and watches far exceeds that for its new energy car business

By Li Shih Ta

Excess capacity is rapidly sucking the life from many of China’s new energy vehicle (NEV) makers, claiming recent victims like WM Motor, which went bankrupt after a failed backdoor listing attempt, and HiPhi, which halted production after the Lunar New Year. Now, the company that was once WM Motor’s backdoor listing vehicle is searching for direction, as its own business selling super high-end NEVs goes nowhere fast.

Six months after its deal to merge with WM Motor collapsed, Apollo Future Mobility Group Ltd. (0860.HK) this month announced plans to issue 446 million new shares through a rights offer, equal to 43.6% of its enlarged equity capital. It would sell the shares for HK$0.46 each, a discount of about 9.8% to its price at the time of the announcement, raising HK$210 million ($27 million) and net proceeds of about HK$160 million.

Mainly funded by high-profile Hong Kong and Macao investors, Apollo started out as WE Solutions, a seller of jewelry and watches. It ventured into the then-fledgling EV sector in 2015 with its purchase of Japan’s GLM and Ideenion Automobil AG, a German automotive solutions provider. It acquired Apollo, a German niche supercar brand, in 2020, and two years later rebranded itself as Apollo, aiming to refashion itself as a maker of high-end NEV supercars.

Big-name investors

Apollo’s A-list of investors has far more star power than its main product, the Apollo EVO. Its largest shareholder, Ho King Man, is the son of Edmund Ho, Macao’s former chief executive. When it announced its EV transformation, it sold convertible shares and received a capital injection from companies belonging to Hong Kong billionaire Li Ka-shing, as well as other local business luminaries.

But following the failed merger with the better regarded WM Motor last September, Li Ka-shing asked for early redemption of his stake. Apollo paid a modest HK$35.1 million plus accrued interest to Li’s Able Catch Ltd. last October, while other investors who requested similar early redemptions have given it until the end of this year.

The new rights issue would be the second for Apollo this year, after it raised HK$48 million on Jan. 15. Of that, HK$10 million was used to service its debt and the rest was earmarked for working capital. Much of the funds raised in this latest round will also go to debt repayments.

Aside from a single investment firm, other buyers of the new shares are Apollo’s existing stakeholders. Their readiness to contribute additional funds shows their commitment to the company as it navigates its financial challenges. After the issue, Ho King Man’s stake will fall to 21.5%, though he will remain as the largest shareholder. Newcomer MPW Index Supreme Investment Fund from Singapore will become the second largest shareholder with 15%.

Even after it satisfies its immediate cash needs, the company’s bigger challenge will lie in the weak prospects for its NEV segment. Its original Apollo IE was supposed to be at the forefront of a new generation of NEV super cars, with only 10 units available worldwide, each priced at 2.3 million euros. Meanwhile, its ambitious Apollo EVO project announced a four-seat electric sports car, the Apollo Evision S, in 2021, but no updates have been provided since then.

Jewelry and watches

Apollo previously warned that it would report a loss of HK$700 million to HK$1.1 billion for 2023, reversing a consolidated net profit of HK$270 million the previous year. It blamed the turn into the red mainly on losses in the value of various assets, as well as goodwill impairment.

Despite its attempts to rebrand as a car company, Apollo’s revenue currently comes mostly from its original jewelry and watch business. In the first half of last year, automotive distribution and related auto services yielded a paltry HK$3.6 million in revenue, a fraction of the HK$100 million from jewelry and watch sales. Its lending arm provided another HK$20.7 million in interest income. Its auto-related revenue did better in the first half of 2022 with HK$170 million in revenue, though that still trailed the HK$270 million from jewelry and watch sales.

Like many in the NEV space, Apollo has been hindered by the challenges of scaling production and gaining market presence, which are all the more difficult given its position at the ultra high-end of the market. Its plan to acquire WM Motor was partly aimed at boosting its presence with more mainstream models, but that deal ultimately fell through. 

After the merger’s collapse, WM Motor founder Shen Hui left and Apollo’s former Chairman Ho King Fung resigned, citing health reasons. Apollo’s general manager and executive director Qi Zhenggang, a seasoned car industry veteran, also left. Its current Chairman Hui Chun Ying is a lawyer and co-founder of a mobile dining app but lacks experience in making cars. None of the company’s slate of directors announced at the end of last year has any experience working in auto companies either.

For now, clearing out its debt remains the company’s top priority. As of June last year, the company’s interest-bearing borrowings and convertible bonds totaled HK$81.4 million and HK$160 million, respectively, while it had about HK$120 million in cash. Of the approximately HK$160 million in net proceeds from the new rights issue, HK$75 million will go to repay debt, while another HK$71.3 million will go to business development.

Unlike other NEV makers, Apollo remains dependent on its traditional business lines, as its future status as a carmaker looks increasingly questionable. The company’s stock price fell below HK$1 after the WM Motor deal collapsed last year and has traded between HK$0.50 and HK$0.80 since early this year. Its price-to-sales (P/S) ratio of about 0.33 times reflects its limited appeal to investors, despite its former dreams of glory. One of its biggest assets remains its A-list of shareholders. But it will need to significantly improve its operations – possibly by finding another NEV partner – to have any chance of ever realizing its automotive dreams.

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