SCHEDULE 13D/A: Blackstone Entities Enter Forward Contracts on VNET Group Shares, Maintain Significant Stake

Blackstone-affiliated entities have entered into prepaid variable share forward transactions with Morgan Stanley Bank, N.A., involving a substantial portion of their VNET Group, Inc. Class A Ordinary Shares and convertible notes.

Summary

• Vector Holdco Pte. Ltd., BTO Vector Fund ESC (CYM) L.P., and BTO Vector Fund FD (CYM) L.P., all affiliated with Blackstone, have entered into Master Confirmations for Prepaid Variable Share Forward Transactions with Morgan Stanley Bank, N.A. on March 17, 2025.
• Under these Forward Contracts, Morgan Stanley Bank, N.A. (the 'Dealer') will make an upfront cash payment to the Counterparties.
• The Counterparties are obligated to deliver consideration (either Class A Ordinary Shares in the form of ADSs or cash, subject to conditions) to the Dealer on specified settlement dates in the first quarter of 2027.
• The value of the consideration will be based on the volume weighted average price per ADS, subject to a predefined floor and cap price.
• To secure their obligations, Vector Holdco pledged 10,096,355 ADSs, Vector Fund ESC pledged 44,833 ADSs, and Vector Fund FD pledged 260,942 ADSs.
• The Counterparties will retain ownership, voting, and ordinary dividend rights in the pledged shares during the term of the Forward Contract, unless a default occurs.
• Blackstone-affiliated entities collectively beneficially own 206,958,235 Class A Ordinary Shares of VNET Group, Inc., representing 12.5% of the outstanding Class A Ordinary Shares.
• This beneficial ownership includes 62,412,780 Class A Ordinary Shares held in the form of ADSs and 144,545,455 Class A Ordinary Shares issuable upon conversion of 2.00% convertible notes due 2027.
• The total principal amount of convertible notes held by Vector HoldCo and Vector Fund FD is US$257,569,559 and US$7,430,441 respectively (inclusive of PIK interest), with an initial conversion price of US$1.8333 per Class A Ordinary Share.
• The percentage of class is calculated based on 1,513,609,283 Class A Ordinary Shares outstanding as of December 31, 2023, plus the 144,545,455 Class A Ordinary Shares issuable upon conversion of the Notes held by the Noteholders.

Sentiment

Score: 5

Explanation: The document is a factual disclosure of beneficial ownership and a new derivative transaction. It does not contain information that inherently indicates a positive or negative sentiment regarding the issuer's performance or outlook, but rather details a financial maneuver by a significant shareholder.

Positives

• The Counterparties retain ownership, voting, and ordinary dividend rights over the pledged shares during the term of the Forward Contract, allowing them to benefit from any appreciation or corporate actions.
• The option for Counterparties to settle the Forward Contract in cash, subject to certain conditions, provides flexibility and potentially avoids direct share dilution if market conditions are unfavorable for share delivery.

Negatives

• A significant number of ADSs (10,402,130 in total) are pledged as collateral, which could be subject to foreclosure by the Dealer in case of a default by the Counterparties.
• The existence of a cap price in the Forward Contracts limits the upside potential for the Counterparties on the shares involved in the transaction.

Risks

• Market price fluctuations of VNET Group's ADSs could impact the value of the consideration delivered at settlement, potentially leading to less favorable outcomes for the Counterparties.
• The Counterparties are exposed to the risk of default on their obligations under the Forward Contracts, which could lead to the foreclosure of the pledged shares by Morgan Stanley Bank, N.A.
• The conversion of 2.00% convertible notes due 2027 into Class A Ordinary Shares could lead to dilution for existing shareholders if the conversion occurs.

Future Outlook

The Forward Contracts entered into by Blackstone-affiliated entities with Morgan Stanley Bank, N.A. specify settlement dates in the first quarter of 2027, at which point the Counterparties will deliver consideration based on the volume weighted average price of VNET Group's ADSs, subject to floor and cap prices.

Industry Context

This filing reflects a common strategy among large investment firms like Blackstone to manage their equity stakes in portfolio companies through derivative instruments. Prepaid variable share forward transactions allow investors to monetize a portion of their holdings upfront while retaining some exposure to the underlying asset's performance and, in this case, retaining voting rights. This type of transaction is often used for liquidity management, risk hedging, or to optimize capital structure without immediately divesting a large block of shares.

Stakeholder Impact

• Shareholders: The pledging of a significant number of ADSs and the potential future delivery of shares or cash under the forward contracts could introduce uncertainty regarding future share supply or demand. The potential conversion of convertible notes could lead to dilution of existing shareholders' equity.
• Creditors: The forward contracts and pledged shares represent a financial arrangement that could impact the company's capital structure or perceived risk, though this filing primarily concerns the shareholder's position, not the issuer's direct liabilities.

Next Steps

• Settlement of the Prepaid Variable Share Forward Transactions is scheduled for specified dates in the first quarter of 2027, where Counterparties will deliver ADSs or cash to Morgan Stanley Bank, N.A.

Key Dates

Keywords

VNET Group, Blackstone, Schedule 13D, Prepaid Variable Share Forward, Convertible Notes, Beneficial Ownership, ADSs, SEC Filing, Equity Derivatives, Investment Management