Chinese electric-vehicle maker NIO is set to raise funds through a $1 billion convertible bond offering, following in the footsteps of other EV companies such as Nikola and Fisker.
Convertible Bonds: A Means of Raising Capital for NIO
Convertible bonds present an opportunity for investors to convert their holdings into company shares, potentially leading to stock dilution among existing holders. However, this approach allows the company to secure borrowings at lower interest rates compared to standard corporate bonds.
Despite a 4.3% decline in premarket trading on Tuesday, NIO’s American depositary receipts (ADRs) have posted a year-to-date gain of over 5%. Nevertheless, they remain nearly 50% lower than their value 12 months ago, as NIO continues to face losses in an increasingly competitive luxury electric vehicle market.
In a statement, NIO revealed its plans to utilize a portion of the net proceeds from the convertible bond offering to repurchase existing debt securities. The remainder of the funds will be allocated towards bolstering its balance sheet and supporting general corporate purposes.
NIO’s move to strengthen its financial position comes as no surprise, as the company navigates the challenges within the luxury EV sector.