Nio raises another $235 million in convertible debt

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William Li Bin, Nio founder and CEO, spoke at its annual launch event Nio Day in Shenzhen on Dec. 28, 2019. (Image credit: Nio)

Chinese electric vehicle maker Nio on Thursday announced the sale of $235 million in convertible bonds to fund its operations. Its shares fell 3.9% by market close during a tumultuous week for global markets.

Why it matters: Proceeds from the offering will relieve near-term cash flow pressures. The company continues to operate in the red even as it nears a major investment from a city-level government.

  • Nio last week confirmedit has been in talks with the government of Hefei in eastern Anhui province for a financing project of more than RMB 10 billion ($1.4 billion).
  • The two parties expect to close the deal in two months, Chinese media reportedciting founder William Li.

Details: Nio is raising $235 million via convertible notes from several unnamed Asia-based investment funds. The notes will bear zero interest and expire in March 5, 2021, according to an announcement releasedThursday.

  • Nio expects to close the deal no later than March 11. The notes will be convertible into company shares at $3.50 per American Depositary Share (ADS) after about six months.
  • The China-based EV company has used convertible bonds to raise a total $435 million in two separate rounds from four Asia-based funds this year alone.
  • Nio is pivoting its funding strategies during a prolonged capital winter, raising small amounts from multiple investors which help it sustain with short-term funds and disperse risks for investors, analysts at investment bank China International Capital Corporation (CICC) said(in Chinese) last month.
  • The CICC analysts said that Nio’s fundamentals are improving, and short-term funds could relieve operating pressures before cornerstone investors join in. CICC last week raised the Nio target price from $3.10 to $4.10, after Nio revealed its funding project with the Hefei government.
  • Others remain skeptical about Nio’s chances of success, including Citi analyst Jeff Chung, who earlier this week downgraded Nio’s shares to neutral from buy with price target reduced by a third to $4.30.
  • “The collaboration will require Nio to spend a portion of the cash injection on the headquarters move, which may put the company under more pressure in case of prolonged sales weakness,” Chung wrote.

Context: Nio’s third quarterearningsbeat forecasts with a 25% year-on-year increase in revenue and netlosses narrowed by 10% from a year earlier.

  • The Chinese EV maker accumulated net losses of more than RMB 8.4 billion ($1.2 billion) in the first nine months of 2019, with net cash of $274 million as of September.
  • Goldman Sachs estimated another cash outflow of RMB 14 billion before it could achieve breakeven in 2023.