You are here

China's tech companies selling convertible bonds at record pace

Hong Kong

CHINESE technology companies are tapping the convertible bond market at an unprecedented pace. Companies from the industry have raised a record US$3.4 billion in convertible bond sales this year, nearly double the total during all of 2018, according to data compiled by Bloomberg. Netflix-style streaming service iQiyi Inc and the country's top anime site, Bilibili Inc, were among the latest sellers.

A global stock rally and attractive financing costs are driving the surge of convertible bond sales by Chinese companies, some of which haven't obtained credit ratings. Investors typically bet on convertible bonds for potential gains on the equity conversion, meaning the two markets tend to move in tandem. The Dow Jones Industrial Average has risen more than 20 per cent from a December low through Wednesday and is close to its all-time high.

"Many of these companies are not cash-flow positive so it is more challenging for them to access the loan and bond markets," said Li Zheng, head of equity solutions group for Asia ex-Japan at Goldman Sachs Group. "CB investors have been willing to fund high growth companies because it allows them to participate in the upside with the conversion option." The securities also provide companies a fundraising option in the event that initial public offering results don't meet topline expectations. NIO Inc, a Chinese competitor to Tesla, sold US$650 million of convertibles in February, months after pricing its US IPO near the bottom of a marketed range.

"2018 was a challenging year for markets, with some companies unable to raise as much as they may have wanted through their IPO," said Jennifer Choi, director of equity-linked origination at Credit Suisse Group. "Some issuers finance preemptively without immediate funding needs. They prefer to opportunistically tap the market when it is constructive, as it is now."

Your feedback is important to us

Tell us what you think. Email us at

Chinese firms that listed overseas in 2018 raised a record US$4.3 billion selling additional shares and convertible bonds within the first year of going public, according to Bloomberg's data. Convertible bonds made up more than 60 per cent of the additional fundraising volume for these newly public firms, the data show.

Lower borrowing costs have lured more established firms to convertible bonds. Lenovo in January sold US$675 million of convertibles with a coupon of 3.375 per cent, against the 4.75 per cent on straight bonds with the same tenor it sold last year.

The volume has also been boosted by Chinese firms taking advantage of a structure, that allows them to use rosier valuation targets than investors would otherwise accept. The method involves selling bonds to investors using a lower conversion price, while making a side deal with investment banks that effectively resets the conversion price at a higher level. BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to