China’s Midea Group raises US$2.2 billion in convertible bond sale
Bonds that convert into stock find a sweet spot when interest rates and volatility are high
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[HONG KONG] Chinese appliance maker Midea Group raised US$2.2 billion from the upsized sale of dual-tranche convertible bonds with zero coupon, according to terms of the deal seen by Bloomberg News.
The company, which is listed in both Hong Kong and Shenzhen, increased the size of the offering early Thursday (May 7), raising the amount in each tranche to HK$8.6 billion (S$1.4 billion) from HK$7.84 billion, with the first due in May 2027 and the second in May 2033.
Midea’s shorter- and longer-dated tranches have conversion premiums of 15 per cent and 37.5 per cent, respectively, over the final price of a concurrent delta placement to help hedging activities by investors, according to the terms.
A growing number of Chinese companies are selling bonds that convert into stock, taking advantage of the lower borrowing costs they offer compared with traditional debt. Among them, aluminium producer China Hongqiao Group last week raised US$1.5 billion. Midea said that it is raising the funds for international expansion and to enhance offshore liquidity.
The sales of exchangeable and convertible bonds are powering ahead in Asia, even with the war in Iran and the volatility that it has caused.
Bonds that convert into stock find a sweet spot when interest rates and volatility are high. The lower, or even zero, coupons are attractive to companies, while investors value the embedded equity option in choppy markets. Higher equity markets also make them appealing, because any dilution that occurs as a result of the bonds converting into stock is done at a premium.
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Midea’s Hong Kong shares have climbed 12 per cent from a low at the end of March.
Morgan Stanley, Goldman Sachs, Citigroup and Bank of America arranged Midea’s deal. BLOOMBERG
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