Electric automaker NIO Inc, among competitors to Tesla in China, released a $650 million five-year exchangeable bond on Wednesday, intending to use the earnings to fund expansion.
The Shanghai-based automaker’s transfer to increase capital by means of an equity-linked bond, just four months after it detailed in New York, mirrors that of China’s Netflix-like video system iQiyi, that sold a $750 million convertible bond in November after going public in 2018, highlighting the increasing appeal of convertibles for high-growth firms in need of cash money.
Convertible bonds are a less costly funding method as a result of their reduced coupons in exchange for providing the shareholder the option of converting the debt into company shares at a set cost in future. The equity link gives investors fixed returns and also the possibility of benefiting from an increase in the provider’s share rate.
NIO was marketing a five-year convertible bond with a conversion premium of between 27.5 percent and 32.5 percent, according to a term sheet observed by Reuters. The coupon range is between 3.5 percent and 4 percent.
The start-up could increase as much as $750 million if a greenshoe, or over-allotment option, was worked out.
The business’s shares closed at $6.94 on Tuesday and also were up around 16 percent since they began trading in September.
Louis Hsieh, NIO’s chief financial officer, informed investors on a phone call that part of the reason for selling a convertible bond was to comprise the difference between what the firm raised in its IPO and also what it had originally looked to increase.
NIO raised $1 billion in its U.S. IPO yet it had previously aimed for $1.8-$2 billion, Hsieh stated.
Inquired about the timing, Hsieh said the convertible bond market was responsive to a deal and he did not wish to wait until March or April and also risk a feasible worsening in U.S.-China trade tensions.
