bought back shares from strategic investors in Anhui twice, in 2020 and 2021, and there is no such thing as a future "gambling" failure, CEO William Li said.

Nio (NYSE: NIO, HKG: 9866, SGX: Nio)'s rumored "gambling agreement" with Anhui's Hefei city has been frequently discussed over the past year or so, and was one of the targets of a short-seller attack late last month.

The company had never officially responded to these discussions until just this past weekend, when its helmsman dismissed it in an interview with state broadcaster, seemingly as a rebuttal to short-seller Grizzly Research.

Nio bought back a portion of its shares from strategic investors in Anhui in 2020 and 2021, respectively, and there is no such thing as failed "gambling" in the future, said William Li, the company's founder, chairman and CEO.

Li made the remarks while appearing as a guest in an interview with a senior Anhui provincial official broadcast Saturday by China's state-run television station CCTV.

Here is his response, translated by CnEVPost:

Recently, there have been some articles on the Internet saying that the "gambling" between Nio and Hefei is a sharp sword hanging over Nio's head.

It is true that Anhui and Hefei's fund has invested in Nio in 2020, which is of course very important for Nio.

We bought back a portion of our shares in 2020 and 2021 through two buybacks. The original value of these shares was RMB 1.5 billion, and we paid RMB 7.5 billion.

There is no such thing as a failed "gambling" in the future.

How did Anhui use the money after it got it back? It continues to support the development of this industry chain and has set up a fund to support the development of the new energy vehicle and intelligent electric vehicle industry chain.

Many companies have already been invested through this fund and are coming to Hefei.

So the thinking of Anhui and Hefei in promoting industrial development through funds is very comprehensive and long-term, not a "gamble" as people write. It's not a short-sighted act.

Following Li's comments, Anhui Governor Wang Qingxian said he was satisfied with the return on the province's investment in Nio.

"An investment of RMB 1.5 billion turned into RMB 7.5 billion, and we still have some holdings, that's an investment achievement," Wang said.

Of course, this kind of investment is risky and not something that others can copy, and requires the support of a specialized investment team, according to Wang.

In April 2020, an RMB 7 billion investment from strategic investors in Hefei saved Nio, which was in deep financial trouble, and the company's share price went up 10 times that year as vehicle deliveries went up.

Notably, it was subsequently reported in the media that under the agreement between the two, Hefei's investors had the right to request Nio to buy back its shares at 8.5 percent annual interest under certain circumstances.

These circumstances included Nio China's failure to complete an IPO within 60 months or to file an IPO application within 48 months after Nio received the entire first phase of investment from these strategic investors.

This was seen as a "gambling agreement" between Nio and Hefei in many local media reports. In its Hong Kong IPO prospectus filed in late February this year, Nio confirmed the existence of the agreement in its risk warning, although the term "gambling agreement" was not used.

In addition to the agreement, the official Weibo account of the Hefei municipal government mentioned that Nio China expects to achieve revenue of RMB 120 billion by 2024 and to list on China's Nasdaq-style sci-tech innovation board, also known as the STAR market, by 2025. The Weibo post was later deleted.

This sparked speculation that it was Nio's performance commitment after receiving the investments from Hefei.

Late last month, short-seller Grizzly Research said they believed Nio was playing a Valeant-like accounting game to inflate revenue and boost net income margins to meet its goals.

In addition to questioning Nio's relationship with Wuhan Weineng (or Mirattery), the operator of its battery assets, Grizzly Research cites a Chinese blog that refers to the "gambling agreement".

"This agreement puts pressure on Nio and poses a material risk to Nio's shareholders. Although it only mentions that Nio would need to buy back the total amount of the investment from the local government at an 8.5% interest rate, there may be more terms under the table that could hurt Nio's shareholders," Grizzly Research's report said.

Notably, the short-seller's skepticism appears to be as unfounded as their skepticism of Weineng.

After two buybacks, Nio now owns 92 percent of Nio China, with the strategic investor's stake in Hefei dropping to 8 percent.

Assuming Nio still holds a 92.114 percent controlling stake in Nio China in July 2024 or July 2025, the redemption cost will be about RMB 4.019 billion or RMB 4.360.6 billion based on a compound interest rate of 8.5 percent per year, respectively, Nio wrote in its Hong Kong IPO prospectus in late February.

This means that if Hefei investors ask Nio to redeem its entire remaining stake, the carmaker would need to pay about RMB 4 billion.

For reference, Nio's revenue in the first quarter was RMB 9.91 billion. The company's cash and cash equivalents, restricted cash and short-term investment were RMB 53.3 billion as of March 31, 2022.

Back to the CCTV video, in addition to refuting the "gambling agreement," Li also mentioned that Anhui has a good business environment, prompting him to voluntarily recommend other companies to come here.

Li specifically mentioned , saying he met the company's chairman and president Wang Chuanfu at a conference, who asked him how the environment in Anhui was.

Li told Wang how Anhui had helped Nio improve efficiency and operations, and then saw BYD coming to Anhui.

BYD's industrial park in Hefei started construction in August 2021 and saw its first vehicle roll off the line in June this year, Li mentioned.

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