Hyper Track | Saudi Arabian Investor: Investing in Chinese Tech Companies Twice in Three Months

Author: Zhou Yuan / Wall Street News

On May 29th, Lenovo Group announced that it has reached a strategic cooperation framework agreement and bond subscription agreement with Alat, a company under the Public Investment Fund of Saudi Arabia focusing on transformative technology investments and sustainable manufacturing, with a total value of USD 2 billion (approximately RMB 14.5 billion).

This strategic cooperation includes Lenovo Group establishing its Middle East and Africa regional headquarters in Riyadh, the capital of Saudi Arabia, and building a personal computer and server manufacturing base in the country to serve customers in the region.

Since Saudi Arabia released its "2030 Vision" in April 2016, the country has been entering a new era of clean energy. According to this vision, Saudi Arabia plans to have 50% of its electricity come from renewable sources by 2030.

Lenovo Group stated that in order to help Saudi Arabia achieve this goal and to support Lenovo Group's own net zero emissions target by 2050, Lenovo Group will not only contribute to Saudi Arabia's 2030 Vision but also benefit from Saudi Arabia's various initiatives in clean energy and sustainable manufacturing, thereby achieving its own corporate goals.

This is a long-term objective.

In the short term, according to the bond subscription agreement between the two parties, Lenovo Group will issue USD 2 billion convertible bonds to Alat. The net proceeds will be used to repay the company's existing debts and to supplement operating funds and general corporate purposes.

In other words, Lenovo Group has found a "creditor" in the Middle East, and the proceeds from the bond issuance will be used to repay existing debts.

According to Lenovo Group's financial report for the fourth quarter of the 2023/24 fiscal year released on May 23rd, as of March 31, 2024, Lenovo Group's total liabilities were RMB 239.6 billion, a decrease of 1% year-on-year; the debt-to-asset ratio was 86.9%, a decrease of 0.5 percentage points year-on-year. The main type of debt is interest-free liabilities (accounts payable to suppliers), accounting for approximately 70%.

According to the agreement between the two parties, these convertible bonds will mature three years after issuance. At that time, they can be converted into equity at a price of HKD 10.42 per share. This represents a premium of approximately 10% compared to the volume-weighted average price per share for the 30 consecutive trading days before the signing of the bond subscription agreement.

Currently, the issuance of these convertible bonds by Lenovo Group and the subscription by Alat are subject to conditions such as shareholder approval and regulatory approval.

Wall Street News noted that Lenovo Group is expanding its capital base. The board of directors of Lenovo Group has approved a proposal to issue 1.15 billion warrants at a price of HKD 1.43 per warrant, totaling HKD 1.645 billion.

If these 3-year warrants are successfully issued, Lenovo Group will be able to raise additional funds to support future growth. This reflects Lenovo Group's determination to continue driving its strategic transformation, global market leadership, and business growth momentum.

Warrants are a financial instrument that gives the holder the right to purchase the company's stock at a specific price within a certain period in the future, but it is not obligatory. Holders of warrants can choose to purchase the company's stock in the future at a specific price, potentially gaining capital returns The value of warrants depends on the performance of the stock price of the issuing company.

If the stock price of the issuing company is higher than the exercise price of the warrant, the holder can profit by exercising the warrant to purchase shares at a price lower than the market price; otherwise, the holder may choose not to exercise the warrant, as buying shares in the market may be more cost-effective.

After approval at the Lenovo Group shareholders' meeting, the issuance of warrants will be conducted by Citigroup Global Markets Asia Limited through private placement.

What is the background of this new creditor of Lenovo Group?

Alat was established in February 2024 and is a subsidiary of the Saudi sovereign wealth fund PIF, with seven key strategic business sectors: advanced industries, semiconductors, smart health, smart home appliances, smart devices, smart buildings, and next-generation infrastructure, creating products for Saudi and global customers.

PIF has assets under management exceeding USD 700 billion and is an important executing agency of Saudi Arabia's national strategic "Vision 2030" plan.

Alat aims to drive industrial transformation by partnering with global benchmark companies in manufacturing and technology industries, helping Saudi Arabia become a world-class sustainable technology manufacturing center. The short-term goal is to reach a total investment of USD 100 billion by 2030, creating 39,000 direct job opportunities in Saudi Arabia.

The company's future intention is to support the implementation of Saudi Vision 2030, achieve economic diversification and sustainable growth, and establish a global sustainable technology manufacturing center in Saudi Arabia focusing on advanced industries and electronic products.

By 2030, Alat is expected to directly contribute USD 9.3 billion to non-oil GDP. However, it is currently unclear what proportion this contribution value will account for in Saudi Arabia's overall GDP by 2030.

Public information shows that Alat will produce over 30 categories of products and serve key industries, including semiconductors, robotics systems, communication systems, advanced computers, digital entertainment products, healthcare systems, and advanced heavy machinery for construction, buildings, and mining.

Although Alat was established only three months ago, it has already established joint ventures with China's Dahua Technology (002236.SZ), Japan's SoftBank Group, US-based Carrier, and Saudi Tahakom, focusing on the Saudi Vision 2030 plan.

In particular, Dahua Technology reached a strategic cooperation with Alat in Riyadh on February 20th. At that time, Alat's investment was approximately USD 200 million. Over three months later, Alat provided Lenovo Group, a Chinese technology company, with an investment ten times that of Dahua Technology.

For Lenovo Group, the two collaborations with Alat will accelerate its transformation, enhance global influence, strengthen diversified layout in the global manufacturing industry, and leverage the growth potential of the information technology and enterprise service markets in the Middle East and Africa to drive business development.

Yang Yuanqing, Chairman and CEO of Lenovo Group, said: "Through this strong strategic cooperation, Lenovo Group will have more resources and greater financial flexibility to further accelerate transformation, expand business, and seize the enormous growth opportunities in the Middle East and Africa region

Yang Yuanqing also mentioned Alat's benefits in this collaboration: "In the future, we plan to establish a new technology and manufacturing base in Saudi Arabia to help the region develop into a future innovation center, and Alat will benefit from this."

Lenovo Group entered the Middle East and Africa markets in 2005, with major customers including Saudi Aramco, the UAE National Oil Company's Supply and Trade Department, and multiple public sector agencies. According to Lenovo Group's 2023/24 fiscal year data, Lenovo Group is the largest PC manufacturer in the Middle East and Africa region, with a market share of nearly 30% and a shipment growth of 22%.