Covered Down Under 08 Yearning for yen 08 Rethinking Pakistan 09
division of Xinjiang, and are
in themselves sub-prefectural
in rank. Therefore, the issuer,
an investment arm of the 6th
Division, should equal a LGFV.
Yet, by a narrow definition,
some analysts reckoned the
issuer was closer to a state-
owned enterprise than an LGFV.
“Typically, LGFVs are
borrowers that raise funds
for the government for
development projects and they
lack meaningful businesses
that generate cash flows unlike
SOEs,” said Christopher Lee,
lead analytical manager for
corporate ratings for Asia-
Pacific at S&P.
“For this borrower, we
believe it is more likely a
SOE because it has a large
trading/industrial business (in
addition to its infrastructure
development activity),” he said.
Agriculture contributed to
about 90% of the issuer’s total
revenue for the first quarter
this year with pharmaceutical
R&D contributing 9.7%. A
small portion of the revenue
came from land development
and municipal infrastructure
construction, according to its
financial report.FUNDING FEARS
Analysts said the default,
though cured, pointed to rising
financial stress in the regionand intensified worries over
refinancing risks of the broader
LGFV sector.
“Whether or not the issuer is
defined as a LGFV, the incident
has warned investors once
again of potential default risks
from the broader LGFV sector,
which are also financially
backed by local governments
and has challenged the belief
in government bail-outs for
LGFV bonds”, CICC said in a
note.
It also said that the incident
could dampen the appetite
again for LGFV bonds, which
had just started to pick up after
a shift in monetary policy in
late July.Bonds of XPCC 6th
Division State-owned Assets
Management sold off last
Tuesday. Its Rmb500m 4.34%
MTNs due this December saw
Rmb30m of the notes sold at a
cash price of 64.6 last Tuesday
from a closing price of 99.34 on
Monday, according to a trader.
No further trades had been
seen by Friday morning, the
trader said.
Investors now have more
reasons to be cautious towards
LGFV bonds.
“Some investors, particularly
banks, told us they would not
look at LGFVs because of the
XPCC saga,” said a Beijing-based
bond underwriter. Electric car maker revs up US IPO
Equities Deal comes amid uncertainty over Tesla buyout
BY FIONA LAU
Chinese electric vehicle maker
NIO kicked off a US$1.8bn New
York listing last week, pressing
ahead with plans to go public
even as the founder of US peer
TESLA was drawing up plans to
go private.
Nio started pre-marketing a
NYSE float last Tuesday, a week
after Elon Musk tweeted that
he was considering taking Tesla
private at a price of US$420 a
share.
In an email sent to Tesla’s
employees on August 7, Musk
said a privatisation could
create the environment for
Tesla to operate best, labelling
stock price swings “a major
distraction for everyone
working at Tesla”.
“Being public also subjects us
to the quarterly earnings cycle
that puts enormous pressure
on Tesla to make decisions
that may be right for a given
quarter, but not necessarily
right for the long term,” Musk
wrote.
Musk complained that
Tesla was the most shorted
stock in history, meaning that
large numbers of people have
an incentive to attack the
company.
Despite all these potential
drawbacks as a public company,
Nio is pressing ahead with
its listing plan as it needs an
enormous amount of capital to
fund its expansion.
“Similar to Tesla, Nio is going
through a stage of cash burning
and heavy capital expenditure.
They need a lot of money to
support the operations,” said a
person close to the company.
Founded in 2014, Shanghai-
based Nio, whose Chinese
name Weilai means “blue sky
coming”, is looking to serve the
same premium EV market as
Tesla, though at a much lower
price point.
Nio started delivering its first
volume manufactured electric
vehicle, the ES8, in June. By the
end of July, Nio had delivered
481 ES8s and had taken
reservations for over 17,
more.
As such, after not generating
any revenue in 2016 and 2017,
Nio posted total revenues of
Rmb46m in the first six months
of 2018. It posted a net lossof Rmb3.33bn for the first six
months of 2018, compared with
annual losses of Rmb5.02bn in
2017 and Rmb2.57bn in 2016.
While Nio reported negative
operating cashflows of
US$549m in the first half of
2018 and had only US$677m of
cash at the end of the period,
it is facing a huge capital
expenditure budget down the
road.
The company’s filing
estimates capex for the next
three years at US$1.8bn, which
is the amount being sought in
the IPO. That spending includes
US$600m over the next 12
months.INDUSTRY COMPETITION
Investors are not surprised at
Nio’s huge capex numbers, but
they are more worried about
potential production delays
and intense competition in the
industry.
“Nio is likely to face some
production delays as Tesla did
for its first vehicle. They also
need to convince investors
how they can turn profitable
in a reasonable time frame
when there are more andmore players joining the
competition,” said one fund
manager.
Other electric car makers in
China include Warren Buffet-
backed BYD, Chery and BAIC.
Nio is hoping the potential of
China’s electric vehicle market
can justify its valuation target
of around US$10bn, said people
close to the deal.
According to Frost & Sullivan,
sales of battery electric vehicles
in China are expected to grow
more than 40% a year until
2022.
Tesla’s market capitalisation
stood at US$57.2bn as of last
Thursday. The stock has fallen
2% since Musk revealed his
privatisation plan, implying
that investors see little chance
of a deal going through.
Nio is tentatively scheduled
to open books on August
29 and pricing is slated for
September 11.
Founder Bin Li is the largest
shareholder with a 17.2%
interest in Nio, followed by
Tencent Holdings with a 15.2%
stake. Li is also the chairman
of NYSE-listed automobile
company Bitauto.
Goldman Sachs , JP Morgan and
Morgan Stanley are leading the
deal with Bank of America Merrill
Lynch , Credit Suisse , Citigroup ,
Deutsche Bank and UBS. For daily news stories
visit http://www.ifrasia.com