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Loss-making Chinese Tesla rival Nio expands new American depositary shares sale, raises USD 428 million on strong demand

Strong US and Asian investors’ demand for its first new share sale since listing in New York comes even as Nio says it will not pay dividends any time soon.

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Chinese electric car maker Nio has expanded its new shares offering to 72 million American depositary receipts (ADRs), from 60 million, raising USD 428.4 million in what might signal a turnaround in investors’ sentiment towards the loss-making start-up.

The final price was set at USD 5.95 per ADR, about 5.6% lower than Wednesday’s closing price at USD 6.3 on the New York Stock Exchange. Still, Nio succeeded in raising more net proceeds than the USD 344.2 million estimate it had stated in its prospectus.

The upsizing was due to “strong demand from US and Asian investors”, said a person close to the transaction.

China digest

There is still an overallotment option for the underwriters to buy nine million more ADRs within a 30-day period to cover additional investors’ demand. Credit Suisse, Morgan Stanley, and CICC are the joint-bookrunners for the deal.

The resurgence of investors’ demand for Nio’s shares this week has defied a lengthy spell of underperformance for the vehicle maker’s stock. From March 2019 until last Tuesday, the share price had been languishing below the IPO offer price of USD 6.26. Nio debuted in New York in September 2018.

Such strong demand seems to suggest investors do not mind buying into a stock with zero dividend yield. Nio said in its prospectus detailing the share offering that it does not have any plans to pay cash dividends “in the foreseeable future”, and would reserve any future earnings for expanding its business.

Nio’s latest fundraising effort comes after the Shanghai-based start-up made record deliveries in May, with 3,436 electric sport utility vehicles–its ES6 and ES8 models–delivered, according to the company’s communications department.

“Based on the current momentum of Nio’s vehicle production and delivery, along with the market feedback, Nio decided … to further enhance cash reserves through the follow-on offering,” said Duncan Johnston, a Beijing-based spokesman for Nio.

Raising funds has become more critical for Nio amid increased competition from the American electric car giant Tesla, which has a manufacturing base in Shanghai, and the difficulties posed by the coronavirus outbreak, which led to communities being locked down and factories halting production.

At the company’s fourth quarter 2019 earnings call in March, chairman and chief executive William Li Bin said that despite the virus outbreak, the company is still confident of achieving positive gross margin in the second quarter. For the whole of 2019 its net losses totalled RMB 11.41 billion (USD 1.61 billion).

This article was originally published in the South China Morning Post.