Chinese EV start-up NIO seeks quicker secondary listing in Hong Kong via introduction, skips fundraising

Companies that seek a listing by introduction are able to do so because their existing shares are already widely held
Shanghai-based carmaker has applied for a listing by way of introduction in Singapore as well

IPO

Georgina Lee

Published: 12:33pm, 28 Feb, 2022

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Shanghai-based electric vehicle (EV) maker NIO said on Monday it had received an approval in principle from the Hong Kong stock exchange for its application to list by way of introduction.

The carmaker, which has sought a secondary listing outside New York amid the looming risk of a delisting in the US, is the only US-listed Chinese EV maker that has opted for a secondary listing without selling new shares or raising new funds. If the listing goes as planned, its shares will be listed on the main board in Hong Kong on March 10, under the stock code “9866”.

Companies that seek a listing by introduction are able to do so often because their existing shares are already widely held, so that there will already be an open market for their shares after the new listing, even without marketing arrangements by underwriters.

“If the company is focused more on getting a faster listing, rather than on fundraising, listing by introduction is an alternative option for US-listed Chinese companies to secure a ‘plan B’ amid regulatory uncertainties and potential delistings,” said Bruce Pang, the Hong Kong-based head of macro and strategy research at investment bank China Renaissance.

The risk of a US delisting has been a key driver that has already sent a steady pipeline of Chinese companies seeking a listing closer to home, many of which were able to raise sizeable IPOs of more than US$1 billion each in 2020 and last year.

NIO, which makes electric sport-utility vehicles such as its seven-seater flagship model ES8, has taken a different path to a listing compared to its two main competitors. Both Xpeng and Li Auto have sought a listing through the sale of new shares, raising US$2.1 billion and US$1.7 billion last June and August, respectively, through initial public offerings.

Founded in 2014, NIO said in a prospectus filed to the Hong Kong bourse on Monday that it started generating a positive cash flow in 2020 and the nine months of 2021. It further disclosed that it had also applied for a listing in Singapore, also by way of introduction.

The implementation of the Holding Foreign Companies Accountable Act, which will force foreign companies to delist from US exchanges if they fail to turn over audit results for three straight years, will see the US’s Securities and Exchange Commission delisting non-compliant foreign stocks by as early as late 2023.

“Our Directors consider that it would be desirable and beneficial for our company to apply for a secondary listing on the stock exchange by way of introduction, as the stock markets in Hong Kong and the United States attract different investors,” NIO said in the prospectus.

Morgan Stanley, Credit Suisse and CICC are the joint sponsors of the deal.

NIO’s US shares closed at US$20.94, down 1.3 per cent, last Friday. One ADR represents one ordinary share. Its shares trading in Hong Kong will be fully fungible to ADRs.

The EV start-up, along with Guangzhou-headquartered Xpeng and Beijing-based Li Auto, are the three mainland Chinese smart EV firms snapping at Tesla’s heels in China’s domestic market.

China reported sales of 2.99 million new-energy vehicles (NEVs) – comprising pure electric, plug-in hybrid and fuel-cell cars – in 2021, a jump of 169 per cent year on year.

And as a rising number of drivers consider replacing their conventional cars with EVs, the delivery volume of such vehicles is expected to top 5.5 million units this year, up 84 per cent from 2021, according to Cui Dongshu, general secretary of the China Passenger Car Association.

For the nine months ended September 2021, Nio reported a net loss attributable to shareholders of 8.6 billion yuan (US$1.3 billion), widening from 4 billion yuan in the same period a year ago.

Bin Li, co-founder and CEO, owns 10.6 per cent of NIO and is its largest single shareholder. Chinese social media giant Tencent Holdings owns a 9.8 per cent stake, according to the prospectus.

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