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China Fund News Wu Juanjuan

On July 23, Ping An of China announced that the convertible bonds issued overseas by the company recently were listed and traded on the Hong Kong Stock Exchange. The total issuance of convertible bonds overseas reached US$3.5 billion, with a coupon rate of 0.875%, and will mature in 2029. Data shows that including Ping An of China's issuance, Chinese companies have issued US$14 billion of convertible bonds overseas so far this year, setting a record high in total issuance. Institutional sources said that this shows that overseas institutions are warming up to Chinese assets. At the same time, more and more companies are choosing to use convertible bonds for overseas financing.

Over 100 investors participated

On July 22, Ping An of China announced on the Hong Kong Stock Exchange that it had issued H-share convertible bonds with a total principal amount of US$3.5 billion, an interest rate of 0.875%, and maturity in 2029. The bonds were issued on July 22, 2024, and will be listed and traded on the Hong Kong Stock Exchange on July 23, 2024. The company will subsequently carry out the filing procedures in accordance with the relevant regulations of the China Securities Regulatory Commission.

The reporter learned from the industry that the issuance attracted more than 100 investors worldwide, including more than 60 long-term fundamental investors. An insider said that the issuance results show that overseas institutions recognize Ping An of China's fundamentals and credit quality and are confident in its development space. He further said that Ping An of China Group has raised funds less frequently overseas, which also partly explains the interest of overseas investors.

Ping An's successful overseas convertible bond issuance is not an isolated case. Data from the London Stock Exchange Group shows that so far this year, the total amount of convertible bonds issued overseas by issuers from mainland China has reached US$14 billion, a record high. In 2021, this figure set a record at the time, reaching US$10.9 billion.

Since the beginning of this year, a number of Chinese companies have achieved impressive results in overseas convertible bond issuances.

For example, in May 2024, Alibaba issued convertible bonds with a scale of US$5 billion. Before Alibaba, JD.com issued convertible bonds with a total scale of US$2 billion. In June 2024, Zijin Mining announced the completion of the issuance of US$2 billion convertible corporate bonds. Recently, Ping An of China issued convertible bonds with a scale of US$3.5 billion. In the early stage, the successful issuance of convertible bonds by Chinese companies overseas gave confidence to the latecomers. According to the reporter, the number of companies communicating with investment banks on the issuance of convertible bonds has increased.

"Such a large-scale concentrated issuance of Chinese convertible bonds has been rare in the past decade," the aforementioned insider lamented. At present, investors prefer assets such as convertible bonds, and overseas long-term investors are interested in Chinese assets with good fundamentals. Against the backdrop of high US dollar interest rates, more and more companies are considering convertible bonds. Because of the possibility of "conversion to equity", the financing cost of convertible bonds is lower than other forms of bonds. Previously, in the low-interest environment of the US dollar, Internet giants tended to issue ordinary US dollar bonds for financing. Now, the attractiveness of convertible bonds is prominent. The recent large-scale issuance of several bonds has also made companies realize the attractiveness of this financing method.

Overseas institutions' interest in Chinese assets is resurgent

Who is buying convertible bonds of overseas Chinese companies? The director of multi-asset investment of a Hong Kong subsidiary of a Chinese institution said that some convertible bonds will be allocated in its portfolio. For example, a fund she is managing holds convertible bonds issued overseas by a well-known technology company. In her opinion, most companies that issue convertible bonds overseas are of good quality, and she can choose targets that meet the requirements. The head of a foreign public fixed income fund said that overseas convertible bond funds can also invest in convertible bonds issued overseas by Chinese companies.

Which companies can successfully issue convertible bonds overseas? In response to this question, the aforementioned insider said that first, the company's stock must have good liquidity and a large market value. Second, companies with higher credit ratings can issue convertible bonds at a lower financing cost.

Some institutional investors also see the recovery of convertible bond issuance as a prelude to the recovery of other transactions. Generally speaking, block trades, private equity transactions and convertible bond issuance will lead the recovery of IPOs, Saurabh Dinakar, co-head of Asia Pacific Global Capital Markets at Morgan Stanley, said in an interview with the media. She added that over the past three months, investors' confidence in Chinese assets has been restored. Investors want to talk about China and understand China.

Global Convertible Bond Recovery

The world is witnessing a revival in convertible issuance in 2024.

The London Stock Exchange Group wrote in a research report that interest rates in overseas markets may stay at higher levels for longer. In this context, convertible bonds have become a popular option for investors. For companies, convertible bonds have also become an attractive debt financing tool.

In the long run, convertible bond issuance has been expanding globally since 2016. However, this trend reversed in 2022. Global stock markets suffered a heavy blow in 2022, and convertible bond investors seeking potential equity growth gains lost interest. As a result, the primary market for convertible bonds has almost dried up. Compared with the previous year, the issuance scale of convertible bonds in 2022 fell by more than 70%.

Global Convertible Bond Issuance

Source: London Stock Exchange Group Research Report

By 2023, convertible bond issuance had picked up. In 2024, convertible bond issuance continued to increase. In 2023, global convertible bond issuance totaled approximately $90 billion. In the first quarter of 2024, global convertible bond issuance totaled $26 billion. The London Stock Exchange Group estimates that global convertible bond issuance will be between $100 billion and $110 billion this year.

Editor: Joey

Audit: Wooden Fish

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