Chinese electric vehicle manufacturer Nio (NYSE:NIO) witnessed an 11% decline in its stock price Tuesday morning, following the announcement of its intention to sell $1 billion in senior convertible notes. The market appears to anticipate that most of these notes will be converted into American Depositary Shares (ADSs), leading to a potential dilution of value for existing shareholders.
The Shanghai-based company, which went public on the New York Stock Exchange in September 2020, plans to utilize the proceeds from this sale to reduce its existing debt and strengthen its balance sheet. As of the end of the second quarter, Nio's debt was approximately $3.9 billion, a 20% surge from six months earlier.
The senior notes, which can be converted into ADSs before their maturity dates in 2029 and 2030, are divided into two tranches of $500 million each. In addition, Nio is providing an extra month for buyers to purchase up to $75 million in senior notes for each tranche. This could potentially elevate the total note offering to $1.15 billion, resulting in further dilution of shareholder value.
However, it's possible that only a fraction of the debt sale will convert into equity. Nio retains the right to repurchase these senior notes before their maturity for cash instead of issuing new ADSs.
Nio's stock price has declined to $9.15, a level not seen since August 29. With the stock already trading below the 100-day Simple Moving Average (SMA), analysts are eyeing the next support level at $9.50, which has held since late 2022.
The company's stock performance might continue to struggle as the market assesses Nio's prospects. However, there could be a boost in buying on October 2, when the company is scheduled to release its delivery data for September. If Nio surpasses 57,000 deliveries for the third quarter, this could potentially trigger a rally in its stock price.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.