Lenovo: Strategic Collaboration With Alat to Issue Convertible Bonds for Regional Expansion

Lenovo announced a strategic collaboration with Alat, a wholly owned subsidiary of the Public Investment Fund, the sovereign wealth fund of the Kingdom of Saudi Arabia. The company will issue USD 2 billion of zero coupon convertible bonds to Alat, which will be convertible upon maturity in three years. If fully converted, there will be a dilution of 12.1% based on the conversion price of HKD 10.42 per share, which is approximately 10% below the closing price on May 29, 2024. We maintain our fair value estimate for Lenovo of HKD 14 per share for now, as we believe the benefits of the deal, such as interest savings and revenue growth potential, are largely offset by the dilution.