New investment secured by Nio China reduced the immediate share dilution risk of Nio and is positive for Nio's share price, according to Deutsche Bank.
Nio (NYSE: NIO) announced earlier today that Nio China has secured a new investment from investors from Hefei, Anhui province, which in Deutsche Bank's view is favorable to the stock price.
“We consider the above-mentioned RMB 3.3 billon fund-raising in Nio China positively, as this move reduces some investor concerns on the immediate share dilution in NIO list co,” analyst Wang Bin's team said in a research note sent to investors today.
“In another words, we expect the share price to react positively on the 'Nio China' fund-raising,” the team said.
Nio announced today that it has entered into definitive agreements with three strategic investors in Hefei for an investment in Nio China, in which it holds a 92.1 percent controlling stake.
The three existing strategic investors will invest a total of RMB 3.3 billion ($470 million) in cash to subscribe for newly issued shares in Nio China.
At the same time, Nio will invest a total of RMB 10 billion in cash for newly issued shares in Nio China.
Upon completion of the investment transaction, Nio will hold a controlling 88.3 percent stake in Nio China, and the strategic investors, together with other existing shareholders, will hold the remaining 11.7 percent stake in Nio China.
Nio also has the right to invest an additional RMB 20 billion to subscribe for additional shares in Nio China by December 31, 2025, at the same price and on the same terms as the investment transaction.
Wang's team believes the move is favorable to Nio's share price due to the reduced risk of immediate share dilution.
Over the past eight quarters, Nio has averaged losses of about RMB 5.2 billion per quarter and has RMB 15.1 billion of net cash on its balance sheet, the team noted.
As a result, some investors expected Nio to raise capital in the next three quarters, which had a negative impact on Nio's valuation multiples as investors worry about potential dilution.
The newly announced financing alleviates some investor concerns about immediate equity dilution at Nio, the team said.
($1 = RMB 7.0111)
Nio announces $470 million investment in Nio China from strategic investors
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