Alibaba to Baidu lead surge in equity-linked bond sales in Asia
Led by Chinese companies, firms in the region have sold more than $30 billion of convertible and exchangeable bonds this year, up from over $20 billion in the same period a year earlier, according to data compiled by Bloomberg. Offerings denominated in US and Hong Kong dollars have been particularly popular.
Concerns about inflation from US tariffs have kept Federal Reserve officials from cutting rates, making instruments such as convertibles that pay little, or even no interest, more attractive for borrowers. For investors, these hybrid securities offer a way to ride the recent rally in Chinese stocks — with limited downside.
'It's been an extraordinarily busy year and it will continue to be busy,' said Gautam Sareen, head of Asia Pacific equity linked and private capital markets at JPMorgan Chase & Co. 'Market conditions have never been healthier.'
Demand has been so high for equity-linked securities that all of Asia's five largest issuances in this space didn't have to pay any interest.
China's Baidu Inc., Alibaba Group Holding Ltd. and Ping An Insurance (Group) Co. of China Ltd. were among the biggest issuers of these hybrid instruments this year.
Baidu raised $2 billion from the sale of notes exchangeable into shares of online-travel agent Trip.com Group Ltd., while Alibaba sold HK$12 billion ($1.5 billion) of bonds that can be turned into shares of Alibaba Health Information Technology Ltd., following other issuers in taking advantage of the lower funding costs in the Hong Kong dollar compared to the greenback. Ping An raised almost HK$12 billion from its convertible.
China's stock market 'felt quite solid right after Liberation Day and then rebounded very, very quickly,' said Brian Chau, co-head of equity-linked Asia at UBS Group AG. 'The APAC market is at a record strength.'
Elsewhere, Grab Holdings Ltd. and MakeMyTrip Ltd. also had a big offerings, as did ailing carmaker Nissan Motor Co., which recently raised ¥200 billion ($1.4 billion) from one of Japan's biggest convertible bonds in years. In South Korea, LG Chem Ltd.'s $1 billion exchangeable bond in May revived a market that had dried up in the country in the wake of a 2023 short-selling ban that was only lifted few months ago.
And although a flare-up of tensions on the geopolitical front or a negative shock for the global economy could shut the issuance window quickly, expectations remain high for offerings to keep flooding in.
Saurabh Dinakar, head of Asia Pacific global capital markets at Morgan Stanley, said that DeepSeek's sudden emergence as an artificial-intelligence powerhouse and Chinese companies' low valuations helped kickstart the rally earlier this year, and the outlook remains bright.
Investors now feel that valuations in China are 'at a bit of an inflection point and as a result they are wanting to get involved and engage in certain sectors,' Dinakar said. 'Assuming that we don't have a wobble from a geopolitical standpoint, our view is that the market will remain active for the balance of the year.' –BLOOMBERG
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