What happened
Shares of Chinese manufacturer of electric cars NIO (NYSE: NIO) traded lower on Friday after the company said it would issue 75 million new shares to raise about $ 1.5 billion.
As of 11:30 a.m. EDT, NIO’s U.S. deposit shares were about 3% lower than Thursday’s closing price.
So what
NIO said next week it will offer 75 million new U.S. shares, but while its plans for the proceeds are likely to be Bullish, they are a bit complicated.
The company’s shares were lower Friday morning due to car investors’ concerns about dilution. Those concerns are legitimate, but after a deeper dive into NIO’s registration boards, I see what the company has in mind. As I explained earlier in an article today, it seems like a good thing for shareholders with a shorter term.
Image Source: NIO.
Here is the story. As NIO investors know in the long run, the company was nearly dangerous in early 2020 – dangerously so – That changed in late April, when it announced that the economic development authorities in Anhui province in China had agreed to nearly $ 1 billion to invest. in exchange for the agreement of NIO to move its operation to the capital of Anhui, Hefei, and to foster a smart car ecosystem there.
That was great news for the company, of course, and the stock did heel well since then. But there was a catch: Simply put, NIO had to give up a stake in its company in China – about 24% – in exchange for the cash.
Under the agreements it signed with those government investors, NIO has the right to repurchase some of that 24% under certain circumstances. It is now benefiting from the huge rise in its share (about 380% since early June) of raising cash to repurchase about half of the stock it raised a few months ago.
Well what
As I write this, it is expected that the secondary offering of NIO will be priced on Friday night, which means that these shares will be in circulation next week. I will not be surprised if the stock gets a little more turbulence in the short term as these stocks enter the market. But I think this is ultimately good news for NIO and its investors in the long run.
