[6-K] WiMi Hologram Cloud Inc. Current Report (Foreign Issuer)
WiMi Hologram Cloud Inc. (WIMI) filed a Form 6-K to disclose a $35 million unsecured convertible note purchase from its majority-owned subsidiary, MicroAlgo Inc., executed on 20 June 2025. WiMi paid $32.2 million, reflecting an 8 % original-issue discount; the note therefore carries an immediate paper gain of $2.8 million and bears no interest. The instrument matures in 360 days, supplying MicroAlgo with near-term working capital to fund growth and R&D while allowing the parent to sustain its strategic influence over the fast-growing subsidiary.
Conversion mechanics: WiMi may convert the note into MicroAlgo Class A ordinary shares at any time at a 60 % discount to the lowest closing price recorded during the 60 trading days prior to a conversion notice. This deep discount is economically favourable to WiMi but could prove highly dilutive to MicroAlgo shareholders if exercised.
Lock-up terms: WiMi entered a parallel 10-year Lock-Up Agreement prohibiting the sale or transfer of any conversion shares, subject to limited exceptions. The long lock-up mitigates near-term market overhang risk yet materially limits WiMi’s liquidity on the investment.
Strategic rationale: Management cites the need to provide funding for MicroAlgo’s rapid expansion and to preserve the parent-subsidiary relationship. No financial covenants, interest expense or external counterparty risk are present, indicating an internal capital reallocation rather than third-party financing. The filing attaches the Purchase Agreement (Ex. 99.1), Note (Ex. 99.2) and Lock-Up Agreement (Ex. 99.3) for full contractual details.
- Zero-coupon structure eliminates future interest expense and marginally supports consolidated earnings.
- 60 % conversion discount grants WIMI significant upside participation in MicroAlgo’s equity appreciation.
- 10-year lock-up mitigates immediate market overhang, supporting MicroAlgo’s share stability.
- $32.2 million cash outflow reduces WIMI’s near-term liquidity.
- Potential dilution to MicroAlgo minority shareholders if the deep-discount conversion is executed.
- 360-day maturity introduces refinancing or conversion timing risk within one fiscal year.
- Decade-long lock-up limits WIMI’s ability to monetise any future gains, restricting capital flexibility.
Insights
TL;DR: Intra-group $35 m zero-coupon note aids MicroAlgo growth; 60 % conversion discount benefits WIMI but could dilute subsidiary; overall cash-usage neutral.
The transaction reallocates $32.2 m of parent cash to the subsidiary at a modest 8 % OID, preserving MicroAlgo’s momentum without incurring external debt. The zero interest rate reduces future expense and marginally boosts consolidated earnings versus a market-rate facility. From WIMI’s perspective, the 60 % discounted conversion option embeds substantial upside if MicroAlgo’s equity continues to appreciate, effectively functioning as a deep in-the-money warrant. However, exercising the option would create meaningful dilution for minority shareholders of MicroAlgo, potentially constraining its valuation. The 10-year lock-up eases near-term supply concerns but restricts monetisation of any conversion gains, impacting WIMI’s liquidity flexibility. Because the cash remains within the consolidated group, immediate balance-sheet leverage does not change, yet free cash flow is reduced by the purchase price. Overall, the deal is strategically sound but not materially accretive in the short term.
TL;DR: Deal is largely internal; key risks are cash drain and potential dilution; limited market impact due to 10-year lock-up.
Risk profile is moderate. The conversion price formula (60 % discount to lowest 60-day close) creates a structural incentive for WIMI to convert, yet the decade-long lock-up removes arbitrage pressure. Cash outlay of $32.2 m could tighten WIMI’s liquidity if operating cash flows weaken. Because the note matures in 360 days, refinancing or conversion decisions will loom within a year, possibly triggering balance-sheet volatility. No cross-default or security interest is provided, so normal creditor hierarchies are unaffected. Market reaction should be muted given the transaction’s intra-group nature, but regulators and minority shareholders will scrutinise fairness, especially regarding the deep discount.
FAQ
Why did WIMI purchase a $35 million convertible note from MicroAlgo?
What is the purchase price and original-issue discount on the note?
When does the convertible note mature?
At what price can WIMI convert the note into MicroAlgo shares?
How long is WIMI restricted from selling the conversion shares?
Does the note carry any interest?
