Chijet Motor's Share Issuance to CVR Holders: A Strategic Move or a Missed Opportunity?

In the dynamic landscape of SPAC-related transactions, corporate governance and shareholder alignment remain critical litmus tests for evaluating strategic decisions. Chijet Motor Company, Inc. (NASDAQ: CJET) recently executed a share issuance of 640,850 Class A ordinary shares to contingent value rights (CVR) holders, a move tied to unmet earnout milestones under its Business Combination Agreement (BCA). This action, while rooted in contractual obligations, raises questions about its alignment with SPAC governance standards and its implications for shareholder value.

The Mechanics of the CVR Issuance

The issuance occurred on July 22, 2025, following the failure to achieve earnout milestones outlined in the BCA signed on October 25, 2022. Two major shareholders—Euroamer Kaiwan Technology Company Limited and Chijet Holdings Limited—surrendered 640,850 shares for cancellation, which were then reallocated to CVR holders on a pro rata basis. Each CVR entitles the holder to 0.492694 shares, with fractional shares rounded down to the nearest whole share [1]. This mechanism, as noted in the BCA, was designed to redistribute equity value to stakeholders when performance targets fall short.

The move reflects a structured approach to managing unmet financial commitments. By reallocating shares rather than issuing new ones, Chijet avoided further dilution of existing shareholders. However, the lack of explicit shareholder approval for this specific issuance under Nasdaq Rule 5635—a regulation requiring shareholder consent for certain equity transactions—has sparked scrutiny. While the company’s broader securities offering (including warrants with zero-cash exercise options) was conducted under a prospectus supplement compliant with Nasdaq rules [2], the CVR reallocation appears to bypass traditional approval processes, relying instead on pre-negotiated contractual terms [3].

Corporate Governance and SPAC Alignment

SPACs are inherently governed by rigorous fiduciary standards, requiring boards to act in the best interests of shareholders while navigating complex merger agreements. Chijet’s board demonstrated active governance in June 2024 by approving a 1-for-30 reverse stock split to stabilize its share price [4]. Yet, the CVR issuance highlights a potential gap in transparency. The decision to reallocate shares from major stakeholders to CVR holders was executed without public shareholder input, a practice that, while legally permissible under the BCA, may not fully align with SPAC governance norms emphasizing stakeholder consultation [5].

Moreover, the company’s recent securities offering—including warrants with anti-dilution protections and reset provisions—suggests a strategic effort to maintain flexibility in capital raising. The zero-cash exercise option for ordinary warrants, for instance, allows investors to double their shareholding without additional cash outlay, a feature that could enhance liquidity but also dilute existing equity further if widely exercised [6]. Such instruments, while common in SPAC follow-on offerings, require careful calibration to avoid eroding investor trust.

Strategic Necessity or Governance Oversight?

The CVR issuance must be evaluated through the lens of its intended purpose: compensating stakeholders for unmet performance targets. By adhering to the BCA’s terms, Chijet mitigated legal risks and maintained credibility with CVR holders, a critical group in SPAC transactions. However, the absence of shareholder approval for this specific action raises concerns about board autonomy and potential conflicts of interest. For instance, the surrender of shares by major stakeholders could be perceived as a forced redistribution of value, particularly if those stakeholders had strategic influence over the company’s operations [7].

Conversely, the move underscores Chijet’s commitment to honoring contractual obligations—a cornerstone of SPAC governance. The company’s broader capital-raising efforts, including the September 2025 securities offering, indicate a proactive approach to securing liquidity amid market volatility. The inclusion of anti-dilution mechanisms and reset provisions in the warrants further demonstrates an attempt to balance investor incentives with corporate sustainability [8].

Conclusion: A Calculated Gambit

Chijet Motor’s CVR share issuance is best characterized as a calculated response to unmet earnout milestones, executed within the framework of its BCA. While the lack of shareholder approval for this specific action may signal a governance oversight, the company’s adherence to contractual terms and its broader capital-raising strategies reflect a strategic alignment with SPAC principles. For investors, the key takeaway lies in monitoring how these instruments—particularly the zero-cash warrants—impact long-term equity value. If managed prudently, Chijet’s approach could reinforce its position in the electric vehicle sector; if not, it risks alienating shareholders through perceived opacity.

Source:
[1] Chijet Motor Issues 640,850 Shares to CVR Holders [https://www.stocktitan.net/news/CJET/chijet-motor-company-inc-announces-issuance-of-ordinary-shares-to-5m0uyw8zth80.html]
[2] about this prospectus supplement [https://www.sec.gov/Archives/edgar/data/1957413/000164117225026159/form424b5.htm]
[3] Press Releases [https://www.quiverquant.com/news/category/press_release_summary]
[4] CJET Chijet Motor Company Inc. [https://quantisnow.com/company/CJET]
[5] April 25, 2025 - DEF 14A: Definitive proxy statements [https://ir.astranahealth.com/sec-filings/all-sec-filings/content/0001104659-25-039438/tm252605d1_def14a.htm]
[6] about this prospectus supplement [https://www.sec.gov/Archives/edgar/data/1957413/000164117225026159/form424b5.htm]
[7] June 30, 2023 [https://www.sec.gov/Archives/edgar/data/1760903/000149315224032325/form10-q.htm]
[8] about this prospectus supplement [https://www.sec.gov/Archives/edgar/data/1957413/000164117225026159/form424b5.htm]