(Yicai) Sept. 14 -- Shares of China’s Z.AI, which became the world's first large language model developer to go public in January, tumbled after it announced plans to raise about USD5 billion from a share placement and convertible bond sale.

After sliding by as much as 10.5 percent in Hong Kong earlier today, Z.AI [HKG: 2513] closed down 9.1 percent at HKD721 (USD91.92) per share. The shares began trading on Jan. 8 at HKD116.20 apiece and surged 2,465 percent to a record high of HKD2,980 (USD379.95) on June 26. They have lost 76 percent since then.

Z.AI will issue 21.97 million new shares to at least six investors at HKD714 each, a discount of about 10 percent on its Sept. 11 closing price, raising about HKD15.7 billion (USD2 billion), the Beijing-based company said in a stock exchange filing yesterday. The newly issued shares will represent about 4.5 percent of its enlarged share capital.

A softer share price following the announcement of a new stock offering is not uncommon, as the new shares dilute existing shareholder equity, often leading to a perceived loss of value in their holdings and triggering a near-term sell-off.

The new offering seeks to raise more than three times the HKD4.3 billion that Z.AI, the first of China’s "six AI tigers" to complete an initial public offering, raised in its IPO. The company also completed a HKD31.4 billion private placement in July and revealed plans in June to raise an additional CNY15 billion through a secondary listing on Shanghai’s Star Market.

Z.AI has already exhausted the IPO proceeds and nearly 35 percent of the funds from the first private placement, it said yesterday, underscoring the huge financial demands associated with developing frontier AI models. Expenditure has risen faster than anticipated, prompting Z.AI to seek additional funding to support AI development, technological innovation, commercialization initiatives, and ecosystem building, it said.

In addition to the new placement, Z.AI will issue about CNY20.1 billion (USD3 billion) of zero-coupon convertible bonds. The initial conversion price was set at HKD892.50 per share, a premium of around 12.6 percent on the Sept. 11 closing price. If the bonds are fully converted, the new shares will equal about 5.4 percent of the total outstanding.

According to the filing, the new placement will be completed on Sept. 16, 2026, and the convertible bonds will mature on Sept. 16, 2027.

Around 60 percent of the net proceeds will go to fund research and development of next-generation general language models and fully self-training capabilities, along with large-scale model training, production inference systems, computing resources, and supporting infrastructure, Z.AI noted.

About 15 percent will be used to support Z.AI’s business expansion, strategic investments, and potential acquisitions aimed at accelerating the commercialization of its general-purpose large AI models, expanding its ecosystem, and enhancing its long-term growth prospects. The remaining 25 percent will be used for balance-sheet optimization, working capital, and general corporate purposes.

Editor: Futura Costaglione