Chinese electric-vehicle maker NIO has joined its peers in offering a $1 billion convertible bond.
Companies like convertible bonds because they allow companies to borrow money at lower interest rates than regular corporate bonds.
NIO plans to issue about $1 billion in convertible bonds. Certain details, including the number of shares the bonds could be converted into, have yet to be announced. Final terms will be revealed as the deal nears completion.
The conversion rate will be close to or slightly higher than the current NIO stock price. If that’s the case, the bonds could convert into about 90 million shares. There are currently around 1.7 billion shares outstanding, including NIO ADRs, which means leverage is likely to be around 5%.
NIO ADRs were down about 14% in midday trading,
S&P 500
And
Nasdaq Composite
They decreased by 0.7% and 0.8% respectively. In the year Stocks were on pace for their worst one-day loss since a nearly 16% loss on Oct. 24, 2022, according to Dow Jones Market Data.
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The droplet size is a little surprising. Fisker stock (FSR) fell 4% in July after announcing plans to sell about $340 million in notes. Those notes could eventually amount to about 44 million shares, or about 13% of shares currently outstanding.
Nicola’s stock (NKLA) fell about 6% in August after announcing a $325 million convertible note sale. The dilution can be in the range of 25%.
Each deal, of course, is a little different. Each stock is in a special situation before any offer.
Coming into Tuesday’s trading, NIO ADRs have gained more than 5% this year, but are still 50% lower than 12 months ago. The company has racked up losses this year as it competes in a crowded market for luxury EVs.
The company plans to use “a portion of the net proceeds from the note offering to partially repurchase debt securities, with the remainder primarily to further strengthen its balance sheet position and for general corporate purposes,” the company said. In the statement. It is common language in bond agreements.
NIO ended the second quarter with nearly $4.3 billion in cash on its books. Wall Street projects the company will use about $250 million to $300 million per quarter to build the business next year.
NIO delivered 94,352 EVs this year through August, up from 71,556 in the same period in 2022.
Write to Brian Swint at [email protected]
