(Yicai Global) Feb. 8 -- A recently announced plan by electric automaker Nio to spend CNY5.5 billion (USD850 million) on repurchasing stock of its Chinese subsidiary has nothing to do with the unit’s intended initial public offering, according to an executive at the US-listed parent company.

The buyback is a win-win situation and will provide new impetus for further development, the Securities Daily reported yesterday, citing the executive.

Shanghai-based Nio said on Feb. 4 that it will buy 3.3 percent of Nio China’s equity to increase its stake to almost 90.4 percent and boost the Hefei-based unit’s working capital by CNY10 billion (USD1.6 billion) because it is optimistic about Nio China.

Nio did not disclose the names of the two sellers, but besides the carmaker itself, Nio China previously secured investment from China's finance ministry and Hefei's municipal government.

The stock repurchase plan may have spooked investors worried that it was motivated by early risk management as the parent company faces an expensive penalty if the unit's planned IPO is delayed. 

Nio and Hefei's government agreed last April that Nio China needs to file for an IPO in 48 months and list within 60 or strategic investors can require the carmaker to buy back the equity at an agreed price based an 8.5 percent annual interest rate.

China IPO

During an earnings conference call last May, founder Li Bin said Nio China could aim to list on its home turf. Chief Financial Officer Feng Wei added that Nio China could learn from the experience of Alibaba Group Holding by listing in the United States and Hong Kong.

But there are signs that Hefei, the capital of eastern Anhui province, is still a Nio-believer. Caijing reported online yesterday that the automaker has said Hefei and its related parties plan to reinvest the proceeds of the deal in Nio China later to their support cooperation.

Moreover, Nio announced on Feb. 4 that it has signed a framework agreement with Hefei to build a world-class industrial park for smart electric vehicles.

On April 29 last year, investors led by Hefei City Construction and Investment Holding Group, CMG-SDIC Capital Management, and Anhui Provincial Emerging Industry Investment poured CNY7 billion into Nio China to acquire a 24.1 percent stake. That resulted in a valuation of more than CNY160 billion (USD24.8 billion), a more than five-fold increase from a year earlier.

After going public in the US in September 2018, Nio has continued issuing new stock. Last year, it did so three times, raising USD4.6 billion in total. It earmarked USD320 million to buy back Nio China's equity, the firm said in August. 

Nio's stock price [NYSE: NIO] fell 1.6 percent to USD56.67 on Feb. 5. The shares have increased 15 times over the past 12 months.

Editor: Emmi Laine