March 26, 2019 / 3:10 AM / 3 months ago

China video-streaming firm iQIYI raises $1.1 billion in convertible bonds

HONG KONG (Reuters) - Video-streaming firm iQIYI, backed by search engine giant Baidu, returned to the capital markets on Wednesday with a $1.05 billion six-year convertible bond, in what is the second-largest such deal by a U.S.-listed Chinese company.

The logo for Chinese streaming platform iQiyi Inc., is displayed on a screen during the company's initial public offering (IPO) at the Nasdaq Market Site in New York City, U.S., March 29, 2018. REUTERS/Brendan McDermid

The deal is the latest example of the growing popularity of convertible bonds among newly listed Chinese tech companies that are searching for growth capital.

IQIYI sold the bonds with a coupon of 2 percent, at the bottom of an indicative range of 2 percent to 2.5 percent, successfully managing to lower its borrowing costs compared to its last such offer that carried a coupon of 3.75 percent and had a shorter tenor.

IQIYI could raise as much as $1.2 billion if an over-allotment option of up to $150 million is exercised.

That would make it the largest such deal by a U.S.-listed Chinese firm, beating the $1.1 billion raised by online travel agent Ctrip.com in 2015, Refinitiv data shows.

A banker on the deal said iQIYI was able to successfully lower its borrowing costs because of an improvement in the market outlook on interest rates after the U.S. Federal Reserve largely abandoned projections for any interest rate hikes this year.

IQIYI first announced its plan for the fundraising on Tuesday, but did not disclose the terms.

This is the second time the Netflix-like streaming service has sold a convertible bond, both within a year of its $2.4 billion Nasdaq IPO in March 2018.

IQIYI’s shares have risen 16 percent since November, when the company sold its first five-year convertible bond of $750 million, which gave investors confidence in the second one, the banker said.

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 shares at a set price in future.

The bonds also give investors fixed returns and the prospect of profiting from a rise in the issuer’s share price.

Buyers of iQIYI’s convertible bonds have the option of converting it into shares at a premium of 32.5 percent to their latest close, or at $30.30. That is at the top end of an indicative range of 27.5-32.5 percent.

IQIYI’s shares closed at $22.87 on Tuesday, less than half their record high of $46.23 hit in June.

Sales of convertible bonds raised $35.5 billion in Asia last year, their highest since the financial crisis, Refinitiv data shows, driven by market volatility and rising borrowing costs.

Technology companies 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 $750 million in 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 were joint bookrunners for iQIYI’s deal.

Reporting by Julia Fioretti; Editing by Himani Sarkar and Gopakumar Warrier

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