Internet giants are embarking on the path of issuing debt. Following JD.com and Alibaba's consecutive moves and official announcements at the end of last month to issue convertible bonds, Ctrip quickly followed suit.

Ctrip recently announced the completion of the sale of convertible senior notes with a principal amount of $1.5 billion, with an interest rate of 0.75%. A little over half a month ago, JD.com and Alibaba announced their plans to issue convertible bonds in late May, with issuance scales of $1.75 billion and $4.5 billion, respectively, and interest rates of 0.25% and 0.5%.

Roughly calculated, the total issuance scale of the convertible bonds from the aforementioned three companies exceeds $7.75 billion, with conversion premiums all exceeding 30%. The funds raised are mostly used for share buybacks, business expansion, and supplementing working capital, among other things. Banks such as Bank of America, Goldman Sachs Group, and UBS Group served as the bookrunners for the issuance.

Why are internet giants issuing debt at this particular juncture? What is the market feedback? With this round of debt issuance already underway, will more Chinese companies follow suit?

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Goldman Sachs has led the business of Chinese overseas convertible bond issuance for three consecutive years. Wang Yajun, Co-Head of Equity Capital Markets for Goldman Sachs Asia (excluding Japan), told reporters from Yicai that in the current high-interest-rate environment, convertible bonds provide a better financing option compared to ordinary bonds. At the same time, the issuers are mostly investment-grade or quasi-investment-grade companies, and the main purpose of issuance is to improve debt structure and repurchase shares.

According to market data, in the first four months of this year, the total overseas financing amount for Chinese concept stocks was about $2.7 billion, and since May, the total financing amount for the aforementioned convertible bond projects has been nearly $8.5 billion. At the same time, some international long-term funds that had been absent for a long time have also reappeared in the aforementioned projects.

Regarding this market trend, Wang Yajun believes that the multi-fold increase in overseas issuance by Chinese companies reflects the speed and strength of market recovery. He mentioned that after the cliff-like decline in 2022, the convertible bond issuance volume in the Asia-Pacific market (excluding Japan) has returned to the levels of 2020 and 2021 this year, with the convertible bond issuance scale so far this year being approximately $10.1 billion.

Internet giants are flocking to issue bonds.

In the past month, JD.com, Alibaba, and Ctrip have successively announced their convertible bond issuance plans.

On May 21, JD.com stated that it planned to issue convertible bonds with a total scale of $1.75 billion, an annual interest rate of 0.25%, a maturity date of June 1, 2029, a conversion price of $45.7, and a conversion premium of about 35%. Earlier that day, JD.com had planned to issue convertible bonds with a scale of $1.5 billion but later announced an increase.JD.com stated that the raised funds will be used for the repurchase of common shares or American Depositary Shares (ADS), expansion of overseas business, improvement of the supply chain network, and replenishment of working capital.

Following closely, Alibaba announced on May 23rd its intention to issue convertible senior notes with a principal amount of $4.5 billion, maturing in 2031, with an interest rate of 0.5% and a conversion price of $105.04, at a 30% premium. The funds raised will be used for the repurchase of Alibaba's ADS, to provide capital for the costs required to enter into capped call transactions, among other things.

Earlier this month, another internet company issued bonds. Ctrip Group announced on the 4th its plan to offer convertible senior notes with a principal amount of $1.3 billion (+ $200 million note option), with an annual interest rate of 0.75%, maturing on June 15, 2029. The conversion price is set at $66.46, with a conversion premium of approximately 32.5%.

Some analysts believe that, looking at the issuance window, the issuance of convertible bonds by the aforementioned companies often occurs during a period of rising market trends for Chinese concept stocks. According to market data, from April to mid-May, the index of Chinese concept stocks rose by 5.5%. In mid-May, the NASDAQ Golden Dragon China Index (HXC) once broke through 7,000 points during trading.

In addition, various factors such as market interest rate levels and company fundamentals are also playing a role. On one hand, in the current high-interest-rate environment, convertible bonds offer a lower-cost financing option compared to regular bonds, allowing companies to save on interest expenses to some extent. Moreover, investment-grade or quasi-investment-grade companies have recently been frequently issuing convertible bonds, primarily to improve their debt structure while repurchasing shares.

However, affected by the news of issuing convertible bonds, JD.com and Alibaba experienced a decline in their stock prices at one point. Before the announcement, JD.com's Hong Kong stock price had reached a phase high of 138.8 Hong Kong dollars per share. But after the news was announced, the stock fell for four consecutive days in the Hong Kong market, with the largest single-day drop exceeding 4%. Alibaba also could not escape the fate of a stock price decline, with the Hong Kong stock once falling more than 5% in a single day.

There has been a surge in the issuance of convertible bonds in the Asian market.

The recent fundraising actions of internet giants have become a market focus, and whether the enthusiasm for Chinese companies issuing convertible bonds overseas is on the rise?

Wang Yajun mentioned that in the past two years, due to factors such as geopolitical issues and the global economic situation, it has not been common for Chinese concept stocks to raise funds through bond issuance.

According to market data, from 2020 to 2023, the convertible bond issuance scale in the Asia-Pacific region, excluding Japan, was $17.7 billion, $27.1 billion, $4 billion, and $9.1 billion, respectively.In the past five years, companies like iQIYI and NIO have issued convertible bonds. In March 2018, iQIYI went public on the US stock market, and in November of the same year, it issued convertible bonds with a scale of $750 million; in March of the following year, iQIYI issued convertible bonds again, with an issuance amount of up to $1.2 billion.

From 2020 to 2021, Chinese-funded issuance projects were relatively active, with Bilibili, Pinduoduo, iQIYI, Meituan, NIO, Li Auto, and other issuers issuing convertible bonds for financing during this period. However, from 2022 to 2023, the market saw a sharp decrease in convertible bond issuances due to factors such as geopolitical tensions and stock price fluctuations.

According to Dealogic data, from 2021 to 2023, Goldman Sachs ranked first in the industry for overseas convertible bond issuances by Chinese-funded enterprises. Goldman Sachs ranked first in the issuance of convertible bonds by Asian ADR issuers, holding a 33% market share since 2018 and leading 27 out of all 37 convertible bond issuances.

Wang Yajun cited data stating, "So far this year, the issuance volume of convertible bonds has returned to the levels of 2020 and 2021." He said that as of this year, the convertible bond issuance volume in the Asia-Pacific region, excluding Japan, is about $10.1 billion, which would be about $22.4 billion on an annualized basis.

"It can be said that the total volume of convertible bond issuances in the Asian market has returned to the peak of the last bull market," he further mentioned.

It is worth noting that in addition to the total volume rebound, the issuers have also changed. During 2020-2021, the issuers of convertible bonds were mostly high-growth companies that financed at a lower coupon rate through convertible bonds when their stock prices were high. However, since the beginning of this year, with the market continuing in a high-interest-rate environment, the issuers of convertible bonds have become investment-grade companies with strong balance sheets.

Led by industry giants, will other internet companies follow suit in issuing convertible bonds?

Some believe that the issuance by the two giants has set a precedent for the entire capital market, allowing other companies to see that the market response has changed positively, and there may be more companies financing through convertible equity products.

The market speculates that Tencent and Meituan may issue convertible bonds in the coming period, while companies like NetEase and Pinduoduo may choose to maintain a wait-and-see attitude or adopt other financing strategies.

"After nearly two to three years of market adjustment, a considerable number of companies have capital needs, and they need financing for business development or to optimize their balance sheet structures," Wang Yajun believes that the overseas market window for Chinese-funded issuers has opened. Against this backdrop, companies in various industries such as technology, internet, and new energy, at different stages of development, may consider issuing convertible bonds.