Chinese tech stars Alibaba, JD fuel convertible bond surge, likely ‘precursor’ to IPO rush

Trip.com and Lenovo Group have also joined in to drive a combined US$10.5 billion in convertible bond offerings in the past two weeks

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Published: 7:00am, 14 Jun 2024

A recent boom in convertible bond sales is kindling hopes that Hong Kong’s capital market is warming up after a years-long chill, with Wall Street banks readying themselves to bask in the glow.

A combined US$10.5 billion in convertible bond offerings by Chinese tech leaders including JD.com, Alibaba Group Holding, Trip.com and Lenovo Group has swept the market in the past two weeks. As a result, total convertible bond issuance in Asia, excluding Japan, is on track to match 2023’s total of US$13.5 billion, according to data compiled by LSEG.

Hedge funds piled into Alibaba’s US$5 billion issuance – Asia’s largest-ever convertible bond transaction and the world’s biggest since 2008 – making the public deal more than five times oversubscribed. Alibaba owns the Post.

Bankers said they have not seen the market this busy since 2021 when the homecoming of Chinese-American Depository Receipts boosted the initial public offering (IPO) market and US-China accounting disputes and geopolitical concerns had yet to cast a pall over the market.

More deals are in the works, they said.

“Some of the recent deals have had levels of oversubscription that we saw at the peak of the market in 2021,” said Saurabh Dinakar, co-head of Asia-Pacific global capital markets at Morgan Stanley. “The convertible bond issuance surge is certainly a big boost for investor confidence and issuer sentiment.”

A convertible bond is a debt-like instrument that pays interest and includes an upside call option to convert into the underlying stock. It can help issuers reduce financing costs compared with traditional bond sales when interest rates are elevated, while also providing investors with equity upside potential and downside protection.