Chinese e-commerce giants Alibaba and JD.com are considering convertible bond sales to raise funds for share repurchases and growth, following in the footsteps of Lenovo. Lenovo, the world's largest PC maker, is raising $2 billion by issuing zero-coupon convertible bonds to a unit of Saudi Arabia's sovereign wealth fund, Alat, a subsidiary of the Saudi Arabia's Public Investment Fund (PIF). The bonds will pay no interest but give Alat the option to convert its holdings into shares at an initial conversion price. The net proceeds will be used for repaying debt and funding general corporate and working capital purposes. Lenovo also plans to set up a regional headquarters and a new manufacturing facility in Saudi Arabia, aiming to enhance its presence and spur growth in the Middle East and Africa markets. The issuance of convertible bonds by Alibaba, JD.com, and Lenovo reflects a trend among overseas-listed Chinese companies to lower funding costs in a high-interest rate environment. The collaboration between Lenovo and Alat also highlights the deepening economic ties between China and Saudi Arabia, with PIF actively investing in Chinese tech companies.
Chinese companies are rushing to tap into the US convertible bond market as Chinese regulators tighten restrictions on domestic fundraising and increase scrutiny on overseas listings. The US convertible bond market offers an attractive financing option for Chinese companies due to its lower costs and flexibility. In recent months, several Chinese companies, including JD.com and Baidu, have successfully issued convertible bonds in the US. The trend is expected to continue as more Chinese companies seek alternative funding sources.
China's top companies have raised a record US$14 billion in offshore convertible bonds so far this year as they diversify future funding needs while interest rates stay high. Offshore convertible bonds from mainland China accounted for 22% of global deals, with Alibaba Group raising US$5 billion in May and Ping An Insurance finalizing a US$3.5 billion transaction last week. The amount raised so far this year from China is up 1,588% on the same period in 2023, when just US$829.3 million was raised in convertible bonds. The pickup in Chinese convertible bond issuance is giving deal makers hope that capital market activity will start to lift, especially in Hong Kong, where IPOs are at the lowest point in 15 years. Globally, there has been US$64.2 billion worth of convertible bonds issued in 2024, and in Asia aside from China, Japan's deal value has increased by 486.2%, according to LSEG. Bank of America recently upgraded its full-year global convertible bond issuance forecast by 11% and now expects there to be up to US$110 billion worth of deals in 2024. [42c65882]