Following in the footsteps of American electric car startup Lucid Group (NASDAQ:LCID), which sold a majority stake in its shares to the Public Investment Fund of the Kingdom of Saudi Arabia in 2019, on Tuesday Chinese electric car manufacturer Nio Inc. (NYSE:NIO) announced that it, too, is bringing in a wealthy Arab investor to help shore up its balance sheet.
Specifically, Nio said that CYVN Holdings L.L.C., an investment vehicle majority owned by the Abu Dhabi Government (part of the United Arab Emirates), will invest $738.5 million in cash to purchase 84.7 million newly issued Class A common shares of the Company at a per share price of $8.72.
Some investors weren’t thrilled with the idea. After all, Nio stock had closed last week’s trading at $9.40 per share, so this was capital infusion came at a more than 7% discount to the market price. However, a 7% discount to market price isn’t too huge of a discount, especially when you consider that Nio, which burned through $1.6 billion in cash last year, could really use the money.
On the one hand, it’s true that Nio already has $4.5 billion in the bank — but Nio also has $4 billion in debt. Assuming the company continue spending at the rate it was spending last year, the extra cash from Abu Dhabi should suffice to cover Nio’s capital investment needs for about half a year. Combined with Nio’s existing funds, this will give the company valuable months that it needs to scale production, ramp revenues — and cut costs.
So if Nio is giving up a bit of control here, and diluting existing shareholders out of about 5% of their stake in the company… at least shareholders are getting something in return.
Also worth noting is that while CYVN (i.e. the UAE) will be buying about 5% of Nio’s stock to add to its existing holdings, it will not be keeping all of that 5%. Rather, Nio noted that after acquiring the shares, the UAE proxy will resell 40.1 million shares — or nearly half the shares it is buying — to another existing shareholder of Nio, and specifically, to an affiliate of China’s Tencent Holdings.
So not only is one big shareholder essentially doubling down on its bet on Nio by buying more shares. Two different big investors are doing so. To outside shareholders, this may feel like a big vote of confidence (two votes, actually) in favor of the company being a good long-term investment.
When all’s said and done, after both the CYVN purchase and the Tencent repurchase, CYVN should own about a 7% stake in Nio, and Tencent will own more than 10%.
Wall Street largely buys into what this EV player has to offer, as TipRanks analytics reveal NIO as a Moderate Buy. Out of 11 analysts polled by TipRanks in the last 3 months, 7 are bullish on NIO stock while 4 are neutral. With a return potential of ~15%, the stock’s consensus target price stands at $10.33. (See NIO stock forecast)
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