Geely Auto to plow 40% of proceeds from RMB share issuance in auto R&D

Shanghai (Gasgoo)- Geely Automobile Holdings Limited (Geely Auto) released on June 24 more details about the preliminary proposal for the possible RMB share issuance and listing on the Science and Technology Innovation Board (Sci-Tech Board) which has been approved by its board of directors.

It is proposed that the initial number of RMB shares to be issued will not exceed 1,731,666,448 shares, representing not more than 15% of Geely Auto's issued share capital as at June 23, 2020, according to the latest announcement. The RMB shares will all be new shares, and involve no conversion of the existing shares.

(Photo source: Geely Auto)

After deducting the issuance expenses, the proceeds of the proposed RMB share issuance are expected to be used for the R&D of new automobile products, the R&D of prospective technologies, the industrial acquisition, and the replenishment of working capital, said Geely Auto.

Specifically, roughly 40% of the proceeds will be used for the R&D of new auto products so as to further enrich the product lineup of Geely Auto and its subsidiaries, and the group's market competitiveness. About 15% of the capital raised will be applied for the R&D of prospective technologies, such as new energy vehicle, automobile networking, intelligent driving, for the sake of the group's continuous improvement in technological reserves and a long-term development.

Additionally, around 15% of the proceeds are set to be used for potential acquisition of some domestic targets, such as factories or relevant innovative enterprises in upstream and downstream of the industrial chain, and the remaining 30% will be used to replenish working capital.

If the actual funds raised from the proposed RMB share issuance surpass the actual capital required for the abovementioned intended uses, the company will apply the surplus to replenish the working capital. If insufficient, Geely Auto will make up the shortfall by its own funds.

The preliminary proposal was unveiled for the first time on June 17, which came as China's central government is stepping up capital market reforms to encourage domestic listings. It is also good news for the China's Nasdaq-like Sci-Tech Board that is striving to attract as many as more high-tech firms.

Geely Auto, whose parent is Zhejing Geely Holding Group, is currently listed on the Hong Kong Stock Exchange, while has publicly expressed its intention of returning to the domestic A-share market. However, it is a rather difficult business for Geely Auto as a red-chip company as it has to cope with a slew of complicated procedures and the laws and regulations within and without the Chinese mainland.

Now, the time has come. According to a document released by the China Securities Regulatory Commission on April 30, the red-chip companies whose market capitalization is not fewer than 200 billion yuan ($28,254,972,000), or which possess self-developed and global leading technologies, boast strong scientific and technological innovation capabilities and have a market capitalization of above 20 billion yuan ($2,825,497,200), will be encouraged to go public on Sci-Tech Board under a pilot program.

“As an industry's bellwether, Geely's return to A-share market may set an example for other firms with similar attempts. How it will perform is likely to affect the market valuation of relevant companies,” said Pan Helin, executive director of the Digital Economy Academy of the Zhongnan University of Economics and Law.

Geey Auto considered that opening the financing channel in the domestic A-share market will help the company further diversify its financing methods and optimize its capital structure, so as to effectively elevate its capital strength and supplement the capital for the strategic development of automobile electrification, intelligence, connectivity and sharing.