Chinese electric carmaker NIO recently bought back and increased its stake in NIO China at a total cost of RMB 15.5 billion ($2.4 billion), which was seen by some as a move to prepare for NIO China's IPO. However, NIO has denied this.
"NIO's buyback of NIO China has nothing to do with the IPO," the Securities Daily quoted an unnamed NIO source as saying.
Hefei plans to reinvest the proceeds from its investment in NIO China in the intelligent electric vehicle industry cluster while considering the rights and interests of NIO shareholders, the buyback is a win-win situation for all parties, the person said.
Recently, NIO announced that it will buy back 3.305% of its equity from two strategic investors in NIO China for RMB 5.5 billion.
At the same time, NIO will increase its equity stake in NIO China by RMB 10 billion. After the completion of the equity acquisition and capital subscription, NIO will hold a combined 90.36% controlling stake in NIO China.
NIO stated that it continues to repurchase and increase its stake in NIO China because it is optimistic about its growth potential.
On April 29, 2020, NIO signed an investment agreement with strategic investors in Hefei regarding its investment in NIO China. According to the agreement, the strategic investors and NIO invested RMB 7 billion and RMB 4.26 billion in NIO China, respectively.
After the completion of the transaction, the parties will hold 24.1% and 75.9% of NIO China's equity respectively, and NIO China will receive additional capital of RMB 11.26 billion.
Within a year of the agreement, NIO's move to boost its equity through buyback and capital increase is believed to be a possible preparation for NIO China's IPO.
During the Q1 2020 earnings call, William Li, founder, chairman, and CEO of NIO, revealed that NIO China has the possibility of IPO in China. NIO CFO Feng Wei also said that it will probably draw on the experience of Chinese companies such as Alibaba to achieve a dual listing in the US and Hong Kong.
Based on RMB 5.5 billion for 3.305% equity, the valuation of NIO China is close to 170 billion yuan. This means that in less than a year, NIO China's valuation has increased more than 7 times.
In a previous interview with the Securities Daily, Li said that NIO China has opened its channel for RMB fundraising and has the possibility of IPO in the Chinese capital market, and NIO will also maintain a significant controlling position in NIO China in the long run.
In addition, according to the final investment agreement between NIO and Hefei last year, NIO China needs to submit an IPO application within 48 months and achieve an IPO within 60 months. Otherwise, the strategic investors will ask NIO to buy back their shares of NIO China at a redemption price of the total investment and interest at a compound rate of 8.5% per year, the report said.
On the same day that NIO bought back its stake, Hefei signed a new framework agreement with NIO to deepen cooperation. The two sides agreed to jointly plan and build the Xinqiao Smart Electric Vehicle Industrial Park to create a world-class intelligent electric vehicle industrial cluster with a complete industrial chain.
(JAC NIO manufacturing base in Hefei, Anhui. Source: cnEVpost)