Entering the Middle East! Lenovo receives US$2 billion strategic investment from Saudi Sovereign Fund

wallstreetcn ·  May 29 09:57

Source: Wall Street News

On Wednesday May 29th, Lenovo Group announced a strategic partnership with Alat Enet, a company owned by the Saudi Arabian Public Investment Fund (PIF).

According to the announcement, Alat Ennett proposed to invest 2 billion US dollars in interest-free convertible bonds to Lenovo Group. Lenovo Group will establish a regional headquarters for the Middle East and Africa markets in Riyadh, the capital of Saudi Arabia, and will build a new PC and server manufacturing base in Saudi Arabia.

According to reports, the net proceeds from the $2 billion convertible bonds issued by Lenovo will be used to repay the company's existing debts, supplement operating capital, and general business use. They expire after three years. At that time, they can be converted to shares at the initial conversion price of HK$10.42 per share. This is about a 10% premium on the trading volume-weighted average price per share for 30 consecutive trading days before the bond subscription agreement was signed.

According to the terms and conditions of the strategic cooperation framework agreement, Alat Enet will have the right to nominate a non-executive director candidate to join the board of directors of Lenovo Group in accordance with the Hong Kong customary director appointment procedure.

Yang Yuanqing, Chairman and CEO of Lenovo Group, said:

“Through this strong strategic partnership, Lenovo Group will have more resources and greater financial flexibility, further accelerate transformation and expand its business, and seize the huge growth opportunities in the Middle East and Africa region. In the future, we plan to build a new technology and manufacturing base in Saudi Arabia to help the region develop into a future innovation center, and Alat Enet will benefit from this.”

Laying out the Middle East for 20 years

According to relevant information, PIF is currently one of the world's largest sovereign wealth funds, with an asset management scale of over 700 billion US dollars, and is an important implementing agency for the Saudi national strategy “Vision 2030”; Alat Enet is involved in advanced industries, semiconductors, smart devices, etc., and aims to build a global sustainable technology manufacturing center focusing on advanced industries and electronic products.

In fact, before establishing partnerships with sovereign funds, Lenovo's products and technology had already entered the Middle East and African markets. Currently, its main customers include Saudi Aramco, the UAE National Petroleum Company's supply and trade departments, and various public sector agencies.

Data shows that since entering the market in 2005, Lenovo's turnover and market share have grown steadily. It has now become the largest PC manufacturer in the region, with a market share close to 30% and a shipment growth rate of 22%.

Alat Ennett's CEO said:

“As Lenovo establishes its regional headquarters in Riyadh and establishes a world-class manufacturing base driven by clean energy in Saudi Arabia, we look forward to seeing Lenovo further unlock its potential in the Middle East and Africa.”

Damo raised target price by 65%

Furthermore, the wave of AI PCs is also expected to bring new development opportunities to Lenovo.

Morgan Stanley said in the report that because it has self-developed AI chips, the most comprehensive AI features, and AI assistants, Lenovo will become one of the biggest beneficiaries of the AI PC market.

According to the report:

Lenovo has always been an undervalued stock, and now we have seen significant upside. Lenovo's stock rating has been raised to “overrated”, and the target price has been raised by 65% from HK$9.10 to HK$15.

Thanks to the rapid growth of the AI PC and AI server market, Lenovo's AI PC market penetration rate will reach 64% in 2028, the laptop penetration rate alone will reach 85%, and AI server orders will also increase significantly.

In addition to Damo, Lenovo has recently been praised by many organizations such as Goldman Sachs and CITIC Lyon, and the company's stock price once rose to a 20-year high.


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