Lenovo Expands Mideast Ties With $2 Billion Convertible Bond, Saudi Fund Deal — Update

By P.R. Venkat and Sherry Qin

Lenovo Group is boosting ties in the Middle East and Africa, raising US$2.0 billion from a unit of Saudi Arabia's sovereign wealth fund and inking a deal to build a manufacturing hub serving the region.

The world's largest PC maker said Wednesday that Alat, a unit of Saudi Arabia's Public Investment Fund, will subscribe to an issuance of zero-coupon, three-year convertible bonds, with proceeds going toward repaying existing debt and meeting working capital needs.

The bonds can be exchanged for Lenovo shares at an initial conversion price of 10.42 Hong Kong dollars (US$1.33) each, a 13.5% discount to shares' closing price on Monday, a day before the deal was signed. If converted in full, the bonds would represent about 12.1% of Lenovo's current shares in issue.

Lenovo also entered into a collaboration with Alat that it said will help grow its business in the Middle East and Africa. As part of the deal, Lenovo will establish a regional headquarters and a PC and server manufacturing facility in Saudi Arabia to serve customers of the region, adding to the company's more than 30 manufacturing sites around the world.

Hong Kong-headquartered Lenovo said the two deals would help it speed up an "ongoing global strategic transformation" as it aspires to grow services revenue alongside its bread-and-butter PC business.

Alat, with an investment budget of $100 billion, was set up by the Public Investment Fund this year to create a global technology manufacturing hub in Saudi Arabia, with an initial focus on semiconductors, smart devices, advanced industrials, AI infrastructure and others. In February, it unveiled a joint venture with Japan's SoftBank Group to make industrial robots at a new plant in Riyadh.

Lenovo's single biggest market segment is the Americas, which accounted for 34% of revenue in the year ended March. China accounted for 22%, while Europe, the Middle East and Africa jointly accounted for 26%.

Lenovo is in the midst of charting a new course in developing artificial intelligence-capable PCs, coming amid returning demand for computers and other consumer electronics after a pandemic-driven inventory glut.

The company's latest quarterly net profit more than doubled to $248 million, returning to on-year growth for the first time in almost two years, while revenue rose about 9%, helped by rising demand for PCs and other devices. Lenovo called the quarter "a notable turnaround."

The company's stock has since rallied, hitting a record on Monday as investors cheered the prospects of its new AI PCs, which Lenovo chief executive Yang Yuanqing expects to make up around 10% of the company's PC shipments in the second half of 2024.

Lenovo's Hong Kong-listed shares fell as much as 5.9% early Wednesday before paring losses to 1.7% in afternoon trade.

Write to P.R. Venkat at venkat.pr@wsj.com and Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

May 29, 2024 04:09 ET (08:09 GMT)

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