China’s Lenovo Group, the world’s largest personal computer (PC) maker, said on Wednesday that it will issue a $2-billion zero-coupon convertible bond to Saudi Arabia’s sovereign wealth fund, as part of the strategic collaboration to expand in the Middle East and Africa region (MEA).
The convertible bond will be issued to Alat, the wholly-owned subsidiary of the Public Investment Fund, at an initial conversion price of HK$10.42 per share, which is at around 12.4% discount to its previous close on Tuesday.
The convertible bonds are interest-free and are due in three years after issuance, while the net proceeds will be used to repay existing debts of the PC maker, according to a stock exchange filing.
The $2-billion deal is part of the rising trend that has seen startups and fund managers rushing to tap oil money as China deepens its ties with the Middle East. As part of the strategic pact with the kingdom, the PC maker will set up a regional MEA headquarter as well as add a new manufacturing facility in Saudi Arabia.
The deal also lands at a time when convertibles have risen to prominence among Chinese Internet companies, thanks to the current high-rate environment and rising equity markets, as it promises lower or even zero-interest payments compared to other traditional fundraising methods such as corporate bonds and loans.
Most recently, Chinese e-commerce giants Alibaba Group and JD.com have raised an aggregate $6.5 billion through the offering of convertible senior notes last week. Both the tech firms plan to use the proceeds for share buybacks.