March 26, 2019
By Julia Fioretti
HONG KONG (Reuters) – Chinese video-streaming service iQIYI Inc is looking to raise $1.05 billion in convertible bonds, the latest example of the growing popularity of the instrument among newly listed Chinese tech companies.
iQIYI announced the sale of its six-year convertible bonds on Tuesday, without disclosing the terms.
A term sheet seen by Reuters showed the bonds were being marketed with an indicative coupon range of between 2 percent and 2.5 percent. The company is hoping to lower its borrowing costs compared to its last convertible bond which had a shorter tenor and higher coupon.
The deal also has an over-allotment, or greenshoe, option of up to $150 million, meaning the total size could reach $1.2 billion.
Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving the bondholder the option of converting the debt into company shares at a set price in future. The bonds give investors fixed returns and the equity link provides the prospect of profiting from a rise in the issuer’s share price.
Sales of convertible bonds hit their highest level in Asia since the financial crisis last year, with $35.5 billion raised, according to Refinitiv data, driven by market volatility and rising borrowing costs.
iQIYI was offering a conversion premium of between 27.5 percent and 32.5 percent, according to the term sheet.
Its shares closed at $24.02 on Monday, almost half of their record high of $46.23 hit in June.
It is the second time the Netflix-like streaming service is selling a convertible bond, both within a year of its $2.4 billion Nasdaq initial public offering (IPO) in March 2018. In November it sold a $750 million five-year convertible bond with a coupon of 3.75 percent.
Technology companies in search of growth capital have increasingly turned to convertible bonds as a way of raising cheaper debt, given the companies are often unrated and have more volatile stock prices.
Electric vehicle maker NIO raised $650 million in a five-year convertible bond earlier this year, only four months after it went public in New York.
Bank of America Merrill Lynch, Goldman Sachs and JPMorgan are joint bookrunners for iQIYI’s deal.
The deal will price after New York markets close on Tuesday.
(Reporting by Julia Fioretti; Editing by Muralikumar Anantharaman)