Chinese companies have raised a record $14 billion in offshore convertible bonds this year as they seek to diversify their funding sources amid high interest rates.
Data from LSEG revealed that convertible bonds from mainland China comprised 22% of global deals. This surge was driven by significant transactions, including Alibaba Group’s $5 billion issuance in May and Ping An Insurance’s $3.5 billion deal last week.
This year’s total marks a staggering 1,588% increase from the same period in 2023, when only $829.3 million was raised through convertible bonds.
The rise in Chinese convertible bond issuance is encouraging for dealmakers, sparking hope for a revival in capital market activity, particularly in Hong Kong, where IPOs have hit a 15-year low. The previous 12-month high for Chinese convertible bonds was $10.9 billion in 2021.
Saurabh Dinakar, co-head of Asia Pacific global capital markets at Morgan Stanley, highlighted the typical reopening sequence of markets, noting that blocks, primary equity, and convertibles often lead, with IPOs being the last to recover.
“In the past two years, there was minimal activity across these products, coupled with a lack of international investor confidence in Hong Kong and China. However, the past three months have seen a resurgence of confidence,” Dinakar stated.
He noted that international investors are showing renewed interest in Chinese deals as the country recovers from the pandemic. “Investors are keen to understand China’s market dynamics. While they remain cautious, the increased dialogue marks a significant change from 12 months ago,” he added.
Globally, $64.2 billion worth of convertible bonds have been issued in 2024. Excluding China, Japan’s deal value in Asia has also seen a notable increase of 486.2%, according to LSEG.
Investors are drawn to convertible bonds as they offer potential equity gains while providing regular coupon payments and principal repayment at maturity if the option to convert into shares is not exercised.
Bank of America has recently revised its full-year global convertible bond issuance forecast upwards by 11%, now predicting up to $110 billion in deals for 2024.
