Convertible Bond Boom Escalates as Trip.com Follows Alibaba

(Bloomberg) — There’s no let up in the rush by Chinese technology companies to issue convertible bonds, with online travel agency Trip.com now following industry giants such as Alibaba Group Holding Ltd. into the action.

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Trip.com announced Tuesday a proposed offering of $1.3 billion convertible senior notes due in 2029 to help repay debt, expand overseas and for working capital needs. To ease any dilution effect, the company plans to repurchase 6 million American depository shares for about $300 million at $50.16 each, the same as the latest close, according to a separate statement Wednesday.

The activity follows hot on the heels of several announcements late last month, the biggest being Alibaba’s record-breaking $5 billion issue. JD.com Inc. set the ball rolling in May with a $2 billion convertible bond offering, and computer-maker Lenovo Group Ltd. also sold $2 billion zero-coupon convertible bonds to a unit of Saudi Arabia’s sovereign wealth fund.

The companies are looking to get funds cheaply via low coupons as interest rates stay elevated. Meanwhile, the rush is a boost for bankers in Hong Kong, where general dealmaking in areas such as initial public offerings has slowed.

Trip.com is offering a coupon of 0.75% and conversion premium at about 32.5%, according to its statement on the terms. It expects the offer to attract convertible arbitrage, a strategy where funds purchase notes and short the underlying stock, which could affect share price. Trip.com slid as much as 4.1% in Hong Kong on Wednesday morning, the most since April 29.

“Expect some near-term share price volatility amid convertible bonds hedging activity and possible profit-taking by short-term investors,” Citigroup Inc. analysts including Brian Gong wrote in a note. Trip.com’s issue makes sense despite its strong cash position, given it is expanding to gain share in Asia, has short-term borrowings of $5.35 billion and needs investment, they said.

Separately, Mergermarket reported Tuesday that Meituan is working with Bank of America Corp. and Goldman Sachs Group Inc. on a second convertible offer, without disclosing details such as size and timing.

Meituan’s shares rose as much as 2.2%, building on gains of 3.7% and 4.1% Monday and Tuesday. The company’s first-quarter earnings are due Thursday.

“As of today, Meituan has no plans to issue convertible bonds,” a representative for the online shopping platform told Bloomberg.

–With assistance from Jane Zhang, Yiqin Shen and Alfred Liu.

(Updates with more information on ADS repurchase in second paragraph and convertible bond coupon and premium in fifth paragraph.)