Lenovo To Issue $2B In Zero-Coupon Convertible Bonds To Saudi Crown Prince's Sovereign Wealth Fund

Lenovo Group Ltd. (OTC:LNVGY) has decided to issue $2 billion worth of zero-coupon convertible bonds to Saudi Arabia Crown Prince Mohammed Bin Salman‘s sovereign wealth fund. This is part of a broader agreement with the tech-friendly kingdom.

What Happened: The convertible bonds will be issued to Alat, an investment firm backed by the Public Investment Fund of Saudi Arabia, at an initial conversion price of HK$10.42 per share, Bloomberg reported on Wednesday. This price represents a 12% discount on the closing price of Lenovo shares the previous day.

As part of the agreement, Lenovo, a Beijing-based manufacturer of PCs and AI servers, plans to establish a research and development center in Riyadh and expand its production capacity in the region.

Upon maturity, the converted notes would represent about 12% of Lenovo’s current capital, or nearly 11% of the enlarged capital post-conversion.

Lenovo reported its third consecutive quarter of net income, driven by a recovery in PC sales and significant investments in servers and other networking equipment to support artificial intelligence. However, the company posted an operating loss due to a shortage of AI accelerators, according to the report.

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Why It Matters: The move comes as the PIF has been ramping up its investments in Asian tech companies over the past decade. The fund recently set up a $100 billion AI and chips fund and is in talks to back the payments startup Airwallex. This has drawn the attention of the U.S., which sees the Middle East as a potential channel for technology transfer from the U.S. to China.

Lenovo’s decision to issue convertible bonds follows similar moves by other Chinese tech firms. Alibaba Group Holding Ltd. (NYSE:BABA) recently sold $4.5 billion in debt that can be turned into equity, a record for convertibles denominated in dollars by an Asian company, with part of the proceeds to be used to buy back shares. This came just days after rival online retailer JD.com Inc. (NASDAQ:JD) sold a total of about $2 billion of such notes.

The PIF’s increasing investments in Asian tech firms are part of a broader strategy to diversify Saudi Arabia’s economy. The fund has also been eyeing acquisitions in other sectors, such as the national airline Saudia, to shift the kingdom’s economy away from oil dependency and boost tourism.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote