Text | Financial Street Lao Li
Geely Holding is a hot spot in the global capital market, and Krypton will be its most imaginative sector.
Yesterday, Krypton announced that the ZEEKR M-Vision concept car will have mass production conditions in 2024. This car is an exclusive vehicle customized and developed for the Waymone driverless team based on the ZEEKR M-Vision concept car, which means that Krypton has taken an important step in the field of autonomous driving.
At the end of last month, Geely Automobile announced that it had submitted a proposal to the Hong Kong Stock Exchange to spin off Krypton and list it independently. The Stock Exchange has confirmed that listed companies can spin off. Although there is still a long way to go before Krypton goes public independently, it has at least taken the first step.
There are a lot of news disclosed by the industry these days. Today, Lao Li will talk with you. Why did the extremely split layout start long ago? What are the strategic considerations for spin-off listing? What are the challenges of the split listing of Krypton?
Krypton split, early signal?
The capital market has always had high expectations for Geely Holding, but frankly speaking, most funds are looking forward to "Geely": in the secondary market, although Geely Automobile’s Hong Kong stocks once made many investors earn the first pot of gold, the whole Hong Kong market is not so good; In the primary market, Geely Holding’s various sectors are booming, but there are not many external financial funds that can be invested.
Listed companies under Geely Holding include Geely Automobile, Volvo Automobile, Polar Star Automobile, Yikatong, etc., and the proposed listing sector includes Cao Cao’s trip, etc., and the listing locations include Hong Kong, the United States and Europe. As the most important intelligent electric vehicle sector under Geely Holding, it is reasonable to go public.
According to the capital market research, Geely has been preparing for the independent listing of Krypton since its establishment. Geely has two main actions: one is to open financing for Krypton, and the other is to load high-quality assets.
Let’s talk about the first action-open financing.
As we all know, Geely always wanted to go public in science and technology innovation board, but in June, 2021, Geely withdrew its listing application because of the tightening IPO policy in science and technology innovation board. At the same time, Geely Automobile announced that it would seek different financing schemes for the extremely krypton brand, that is, from this time on, the extremely krypton independent listing plan was officially launched. At the same time, Geely Holding Group and Beilun District of Ningbo signed an investment cooperation agreement for the extremely smart electric vehicle project, and the global headquarters of extremely smart technology company settled in Ningbo.
Later, everyone became more clear. In August last year, Krypton launched the Pre-A round of financing. The financing targets included ecological partners such as Contemporary Amperex Technology Co., Limited, Billie Billie and Intel Capital. The publicly disclosed financing amount was 500 million US dollars, corresponding to 5.6% of the shares. According to this figure, the post-investment valuation of Krypton in August 2021 was close to 60 billion yuan.
Two months later, Geely Automobile announced that it would buy back part of its equity. By the end of Geely Automobile’s 2021 annual report, Geely Automobile held 59.71% of its equity. As for the specific shareholding structure behind it, there is no public disclosure at present.
Not surprisingly, in the next year or two, Krypton will further carry out external financing, but not too many shares will be sold, and Geely will have absolute control over the enterprise.
The second action of the split listing of Krypton is the merger of high-quality assets. Merging high-quality assets is a common practice in the capital market, with two main purposes: First, after merging high-quality assets into Krypton, it can support the listing of Krypton and obtain a good premium; conversely, Krypton will also drive the original assets to increase the premium and achieve the effect of killing two birds with one stone.
In July last year, Krypton Group (Krypton Holdings and its subsidiaries) entered into a CEVT acquisition agreement, a vast energy acquisition agreement and a Ningbo Weirui subscription agreement to acquire assets and technologies needed for R&D, production and sales of electric vehicles.
So far, Krypton holds 51% equity of Ningbo Weirui, 49% equity of Times Geely and 30% equity of Vast Energy. It can be seen that all the best assets of Geely Holding on power batteries and charging services have been loaded to Krypton.
Split and go public, kill two birds with one stone?
Seeing this, many friends will ask why Krypton will be split and listed, or what will Krypton bring to Geely Holding after the split and listing? In Lao Li’s view, apart from obtaining high premium in the primary and secondary markets, it is more important to serve Geely Holding Group.
In the past few years, although Geely’s industries have spread all over China, Geely’s capital has been globalized. For more than a decade, capital globalization has also driven industrial globalization. In the new stage of development, it will be the general trend for industry and capital to return to China. On the new energy vehicle track, neither the American market nor the Hong Kong market can get the same treatment as the domestic market. Most importantly, the market, industrial chain and capital of new energy vehicles are all in China.
Geely Automobile has been conceiving the A+H capital layout, looking at the performance of BYD, Contemporary Amperex Technology Co., Limited and Great Wall Motor in A-shares, and then looking at the performance of Geely Automobile in Hong Kong stocks, we can see from a glimpse that Geely Automobile will get a new financing path after the listing of A-shares, but for various reasons it backfired.
In the announcement, the spin-off terms of Krypton, such as listing place, listing time and sale scale, have not yet been determined. In fact, it is in the early stage of listing, and Krypton itself cannot be determined. Lao Li believes that according to Geely Holding’s strategy and external market environment, Krypton is likely to give priority to listing in science and technology innovation board, and of course, Hong Kong market and American market are not excluded.
Some friends of Lao Li said that the probability of listing Krypton in science and technology innovation board should be above 70%, on the one hand, because it serves the overall strategic layout of Geely Holding, and on the other hand, because the overall valuation of A shares is higher than that of Hong Kong, especially the new energy sector, which will be far ahead of the Hong Kong market in the next decade or even longer, and Krypton will get a better valuation premium than Hong Kong for its spin-off listing in science and technology innovation board and its spin-off listing on Growth Enterprise Market in the future.
The strategic layout of Geely Holding is very important, and it is also important to maximize the "assets". There is a saying in the secondary market.
At present, most new energy automobile companies don’t make money, and so does Krypton. According to Geely Automobile’s financial report, Krypton’s revenue in 2021 was 2.868 billion yuan, and its net loss was 1.010 billion yuan. The loss in the first half of this year reached 759 million yuan, with an average monthly loss of 126 million yuan. In the final analysis, these inputs and losses were borne by Geely Holding, or Li Shufu personally.
In the process of spin-off, Krypton can raise funds in the primary market, or refinance after listing, so as to obtain greater funding channels. At the same time, after the split-up of Krypton, it can also greatly alleviate the financial burden of the listed company Geely Automobile, optimize the financial statements, obtain a higher return on investment than before, and boost the valuation of the secondary market.
In addition, for Krypton itself, the spin-off will also promote the company’s main business to be more focused and more transparent, which will also help to convey a clear corporate image to the capital market and gain the recognition and support of investors.
Where are the challenges and dawns?
From the general direction, the split listing of Krypton is a perfect path, but it is not easy to walk. Lao Li believes that the biggest challenge at present is not internal, but external, which is not only a problem that extremely krypton will encounter, but also a problem encountered by other new energy vehicle companies.
Lao Li has mentioned many external problems before, but each family also has difficulties. For example, Zhongchuang Singapore Airlines and Zero Run Auto are listed in Hong Kong, and the pressure from shareholders has forced everyone to go. Weimar has also slowed down the pace of listing in Hong Kong, not because it doesn’t want to go to Hong Kong, but because its valuation is too low.
In the past two years, a number of new energy vehicle enterprises hatched by traditional giants have been added to the market, such as GAC Ai ‘an, SAIC Zhiji, Dongfeng Lantiu, Great Wall Salon, Chang ‘an Aouita, etc. After the capital market targets increase, the market will naturally kill the valuation, and the number of people sharing the cake will increase, and the value of each cake will naturally decrease.
So waiting is the best way for companies that are not short of money. The idea of extreme krypton may be to choose to promote the listing process first and then start the listing according to the appropriate time and price. A brokerage analyst also put forward the possibility that the news of the spin-off listing will pave the way for the A round of financing in the next 1-2 years. After all, some industrial funds have already made contact with Krypton.
For Krypton itself, at present, both science and technology innovation board and HKEx have put forward new auditing requirements for R&D capabilities of new energy vehicle companies. From 2020 to this year, many vehicle companies and Internet companies have stopped IPO due to "insufficient R&D level". We will wait and see how Krypton can play this card.
Despite the poor external environment, the sales volume of krypton has been exceeding expectations. In the first three quarters of 2022, the cumulative sales volume of krypton was 39,500 vehicles. After entering October, the delivery of krypton entered the fast lane, and the monthly delivery volume exceeded 10,000 vehicles, reaching 10,119 vehicles, an increase of 22.3% from the previous month. But the delivery pressure of krypton is not small.
Despite this, Geely is still at the forefront of domestic car companies, and its layout in the capital market is mainly around mergers and acquisitions and spin-offs. In the past ten years, Geely has been carrying out mergers and acquisitions, from traditional cars to new energy, from intelligent networking to ecology, achieving good synergy, while spin-off listing is a means of asset divestiture, which broadens the company’s financing channels through high-quality asset spin-off.
Generally speaking, there are two types of companies listed in the capital market: one is a growing subsidiary with strong profitability, such as BYD’s Foday Battery, and the other is an incubation platform company, such as Sina Weibo, which is incubated by Sina. From this point of view, krypton belongs to both at present, and will get a higher valuation in the capital market.
The listing of krypton will open up new ideas for Geely Holding, and will also open up new ideas for the industry.
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