Lenovo Raises US$2 Billion in Convertible Bonds from Saudi Arabia Sovereign Fund
Lenovo raises US$2 billion through convertible bonds from Saudi Arabia sovereign fund. Bonds pay no interest but offer conversion option to Alat at a discount. Collaboration with Alat aims to enhance Lenovo's presence in the Middle East and Africa markets.
The bonds will be offered to Alat, a subsidiary of Saudi Arabia's Public Investment Fund (PIF), in a move to finance debt repayment and support the company's expansion efforts. This comes shortly after similar offerings made by e-commerce giants Alibaba and JD.com, as companies seek to lower their funding costs.
The three-year bonds will not pay any interest but will provide Alat with the option to convert its holdings into shares at an initial conversion price of HK$10.42 per share upon maturity. This represents a discount of approximately 12% from Tuesday's closing price. If the entire holdings are converted, it would release an additional 1.5 billion shares into the market, accounting for around 12.09% of the capital base as of the announcement date.
In addition to the investment, Alat has entered into a strategic collaboration with Lenovo to enhance its presence and drive growth in the Middle East and Africa markets. This collaboration aims to leverage Lenovo's expertise in the laptop market and capitalise on the opportunities in these regions.
The net proceeds from the bond issuance will be utilised by Lenovo for debt repayment, as well as for general corporate and working capital purposes. The company has also revealed its plans to establish a regional headquarters and a new manufacturing facility in Saudi Arabia, further solidifying its commitment to the region.
Lenovo expressed its optimism about the financial flexibility that this funding will provide, enabling the company to implement its proven strategy and transform into a solutions and services-led business. The move aligns with the company's long-term vision and growth objectives.
Lenovo's decision to issue convertible bonds follows the recent record-breaking $4.5 billion sale by Alibaba and the $2 billion offering by JD.com, both aimed at funding share buybacks. UBS predicts that more overseas-listed Chinese companies may follow suit, considering convertible bonds as an attractive financing option due to their relatively low cost.
In a high-interest rate environment, convertibles have become more appealing to issuers compared to conventional bonds, as they offer lower financing costs. For investors, convertibles provide both protection and the potential for extra income. The built-in equity exposure allows convertibles to increase in value when the underlying stock price rises, while the bond floor acts as a safety net during market downturns.
The collaboration between Lenovo and Alat also reflects the deepening economic ties between China and Saudi Arabia. PIF has been actively investing in Chinese tech companies, recently increasing its stake in Alibaba by 11%.
Citi has been appointed as the sole adviser to Lenovo's bond sales. Following the announcement, Lenovo's shares experienced a slight decline of 1.7% on Wednesday, reaching HK$11.62, due to concerns about potential earnings dilution.
Lenovo raises US$2 billion through convertible bonds from Saudi Arabia sovereign fund
Bonds pay no interest but offer conversion option to Alat at a discount
Collaboration with Alat aims to enhance Lenovo's presence in the Middle East and Africa markets
Source: SCMP