Nio raises $200 million from Tencent, CEO in convertible notes

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The outside of a Nio store in Shanghai on April 11, 2019. (Image credit: TechNode/Shi Jiayi)

Troubled electric vehicle maker Nio is raising new cash via convertible notes from Tencent to help with finances during an acute cash-flow crunch.

Why it matters: The cash infusion from Tencent, a major investor, will provide a much-needed boost for Nio, which has been hit by flagging sales and a massive recall this year.

  • The Chinese EV maker has rolled out a series of measures to boost sales including a three-year, interest-free payment plan for domestic buyers. It is said that the carmaker has also introduced zero down payment financing in Shanghai, with a 1.29% interest rate for five years.
  • Sales of the ES8 model, Nio’s first mass-market offering, has been trending downward after peaking at 3,318 units in December. It delivered just 837 cars in July, 80% of which were the company’s second SUV model, the ES6.

Details: Nio will issue $200 million in convertible notes to a Tencent affiliate as well as Nio CEO William Li Bin, with each subscribing for $100 million principal amount, according to a company announcement released Thursday.

  • The notes will also be split into two equal tranches, with the first of which will mature in 360 days and be convertible into company shares at $2.98 per American Depositary Share (ADS).
  • The second tranche will mature in three years and will be convertible into stock at $3.12 per ADS from the first anniversary of the issuance date. Nio will pay premiums at 2% and 6% of the original amounts at maturity, respectively.
  • Nio’s share prices surged 7.27% to $2.95 as of the market close on Thursday.

The subscription from Tencent and Li show confidence from major shareholders about the company’s future performance, and more details will be revealed in the upcoming quarterly results which will be released later this month, the company said in an announcement sent to TechNode on Friday.

EV maker Nio sees 50% revenue decline in Q1, expects continued slowdown

Context: This is the second time the Chinese EV maker has financed its operations with convertible securities after its September 2018 listing in New York.

  • The company raised $650 million in convertible notes in January this year, of which Tencent and Hillhouse Capital Management, another major backer, bought $30 million and $5 million, respectively.
  • Convertible bonds are a relatively cheap way to procure capital due to low interest rates, and, if converted to stock, gives companies the distinct advantage of turning debt obligations into equity.
  • Tencent is Nio’s largest institutional shareholder with a 13.3% stake, followed by UK investment company Baillie Gifford & Co (9.7%), and Chinese venture capital firm Hillhouse (6.2%) as of the end of December, according to the company’s 2018 annual report.