initial public offerings (IPOs) trading on American exchanges

Friday, September 14, 2018

Nio (NIO) began trading on the NYSE on 12 September 2018

NIO is a Chinese start-up automobile manufacturer headquartered in Shanghai, specializing in designing and developing electric autonomous vehicles. The company offers electric cars under EP9, EVE, and ES8 brand names.
  • Founded: 2014
  • Number of employees: 4,000
  • Sector: Consumer Cyclical
  • Industry: Auto Manufacturers
  • "China’s Tesla"

Nio sold 160 million American depositary shares priced at $6.26 each, barely above the low end of its price range of $6.25 to $8.25. The company raised $1.00 billion and could raise up to $1.15 billion if all the options granted to underwriters to buy additional shares are exercised.

The deal is among the larger U.S. IPOs this year, behind Axa Equitable Holdings’ (EQH) $3.16 billion, PagSeguro Digital’s (PAGS) $2.6 billion, and iQIYI Inc.’s (IQ)  $2.4 billion.

Unusual—and risky—corporate structure
Like many Chinese companies with listings outside of China, Nio is a variable-interest entity, or VIE, a structure created in the 1990s as a workaround for Chinese companies that are not allowed to have direct foreign ownership.

Under the VIE structure, the Chinese company creates two entities, one in China that holds the permits and licenses needed to do business there and the other an offshore entity, in this case in the Cayman Islands, in which foreign investors can buy shares. The Chinese entity, which is usually owned by top executives, pays fees and royalties to the offshore company in contractual arrangements.

The biggest example of a VIE is Alibaba Group Holding Ltd., in which the Chinese entity is wholly owned by its founder and chairman, Jack Ma.

The risk with this setup is that foreign investors don’t actually own stock in the company, and local management or even the Chinese government could decide or force a split with the listed company, leaving U.S. investors high and dry.

“It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide,” the company warns in its prospectus.

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