Chinese companies secure record $14 billion in offshore convertible bonds amid high-interest rates

Chinese companies have set a new record, raising $14 billion (£10.7 billion) in offshore convertible bonds this year. This surge underscores their strategic shift to diversify funding amidst persistently high interest rates. 

Data from LSEG reveals that mainland China’s share of global deals now stands at 22%, highlighting its growing market influence.

The $14 billion raised so far in 2024 represents an astonishing 1,588% increase from the $829.3 million (£631.2 million) raised in the same period last year. This growth is driven by major transactions, including Alibaba Group’s $5 billion (£3.8 billion) issuance in May and Ping An Insurance’s $3.5 billion (£2.7 billion) deal last week.

Market optimism despite IPO slump

The spike in Chinese convertible bond issuance offers hope for deal makers, especially in Hong Kong, where initial public offerings (IPOs) have plummeted to a 15-year low. In 2021, IPOs raised $10.9 billion (£8.3 billion) over 12 months, but recent activity has lagged significantly.

Historically, market reopenings progress from blocks and primary equity to convertibles, with IPOs being the last to pick up. This trend has fueled optimism that broader capital market activity may soon revive.

Over the past two years, a notable lull in these products was observed, with international investors hesitant to engage in Hong Kong and China. However, the past three months have shown signs of renewed confidence among these investors.

Renewed investor interest in China

International investors are increasingly showing interest in Chinese deals, reflecting cautious but growing confidence since China’s recovery from the pandemic. The dialogue around Chinese investments has intensified, signaling a positive shift compared to the situation a year ago.

In the past, international investors were largely disengaged from Chinese markets, but now they are keen to discuss and understand the latest developments. While caution remains, the increasing dialogue is a promising sign of improving investor sentiment.

Global and regional trends in convertible bonds

Globally, the convertible bond market has seen $64.2 billion (£49 billion) in issuances in 2024. Japan has also experienced a significant uptick, with deal values rising by 486.2%, according to LSEG.

Convertible bonds are appealing to investors because they offer potential equity gains along with coupon payments. If the option to convert into shares is not exercised, the principal is repaid at maturity. This hybrid feature makes them a popular choice for investors seeking both security and growth potential.

Bank of America recently revised its forecast for global convertible bond issuance, raising it by 11%. The bank now anticipates up to $110 billion (£83.9 billion) worth of deals in 2024, reflecting a robust market outlook.

Future outlook for Chinese capital markets

The substantial increase in convertible bond issuance by Chinese companies indicates a strategic move to secure diverse funding options. This trend showcases the adaptability of Chinese firms in navigating the current economic landscape, characterized by high-interest rates and post-pandemic recovery.

As investor confidence gradually returns, other capital market activities, including IPOs, are likely to follow. The renewed dialogue and interest from international investors suggest that China remains a critical player in the global financial market. This resurgence in convertible bond issuance could herald a broader recovery in capital market activities in the region.

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