Nio: Strategic Placement Should Remove Near-Term Concern Regarding Cash Liquidity

Nio NIO announced a strategic investment from CYVN Holdings, an investment vehicle majority-owned by the Abu Dhabi government. CYVN, through a private placement, will subscribe to 84.7 million newly issued Class A ordinary shares of Nio for an aggregate of USD 738.5 million in cash. The purchase price of USD 8.72 per share is determined as the volume weighted average price of Class A ordinary shares over the seven consecutive trading days preceding June 19 and adjusted for the American depositary share ratio. We view the fundraising activity positively as it removes investors’ concern on the company’s near-term liquidity. We maintain our fair value estimate of USD 14 per ADS (HKD 108 per share), which implies a forward price/sales ratio of 2.6 times.

In addition to the share subscription, CYVN will also purchase 40.1 million Class A ordinary shares of Nio beneficially owned by an affiliate of Tencent TCEHY. After the share transfer and together with the private placement, CYVN will own approximately 7% of total issued outstanding shares in Nio and be entitled to nominate one director to the company’s board of directors. According to Nio’s annual report, Tencent entities jointly held 164.2 million Class A ordinary shares as of Feb. 28. We estimate Tencent entities will still hold around 124 million shares in Nio after the share transfer, which is approximately 7% of total issued shares.

Nio recorded a CNY 4.8 billion net loss in the first quarter, a CNY 6.8 billion reduction in cash balance, and a net cash position of CNY 16.4 billion. As well, Nio has CNY 1.1 billion convertible notes due February next year and an estimated CNY 4 billion convertible notes that are subject to possible repayment at the same time. We believe the share placement is positive as it removes the company’s near-term liquidity concern. With a refreshed model lineup at competitive prices for the second half, we remain confident Nio will record a recovery in vehicle delivery and margin outlook.