Lenovo Group Ltd. plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund, as part of a strategic partnership with the tech-focused kingdom. The bonds will be issued to Alat, an investment firm wholly owned by the Public Investment Fund (PIF), at an initial conversion price of HK$10.42 per share, which is about a 12% discount to Lenovo shares’ closing price near a nine-year high. Following the announcement, Lenovo’s shares were down around 2% on Wednesday.

Under the agreement, Lenovo will build a research and development center in Riyadh and expand production capacity in the region. Upon maturity, the converted notes would represent about 12% of Lenovo’s current capital, or near 11% of the enlarged capital post-conversion. This move aligns with Saudi Arabia's broader push to enhance its competitiveness in advanced technologies, particularly artificial intelligence, amidst a global tech rivalry involving the US and China. Lenovo, known for its in-house production capacity, is an attractive partner for Alat. The convertible bond issuance provides Lenovo with strategic investors to extend its footprint in the rapidly growing Middle Eastern and African markets. High-income Middle Eastern countries are heavily investing in AI infrastructure.