36 ASIAN LEGAL BUSINESS – JULY 2024 WWW.LEGALBUSINESSONLINE.COM In recent months, a wave of convertible bond issuance has breathed new life into Hong Kong’s anaemic capital markets. Since late May, four major Chinese internet and technology companies—JD.com, Lenovo Group, Alibaba Group, and Trip.com - have successively issued convertible bonds totalling $10.5 billion. Notably, Alibaba’s $5 billion issuance set a record for the largest U.S. dollar-denominated convertible bond by an Asian company. This issuance and others have lifted the spirits of Hong Kong’s bankers and lawyers hoping for a prompt revival of Asia’s erstwhile fundraising powerhouse after a persistently subdued IPO scene so far threatened to choke the city’s investment prospects. Jonathan Stone, partner and head of global transactions at Skadden, Arps, Slate, Meagher & Flom in Hong Kong, and counsel Vincent Sze point out that an increasing number of companies are using convertible bonds as an alternative source of funding. “Many of the issuers are U.S.-listed (or dual U.S./Hong Kong-listed) companies with substantial PRC operations, particularly in the technology sector. We believe that this trend is likely to continue while interest rates remain high and primary equity market issuances remain challenging,” say Stone and Sze. Tian Mingzi, a partner at Jingtian & Gongcheng based in Beijing, believes a warm reception to large-scale convertible bonds can “boost market confidence and attracts more investors,” thereby “increasing trading volume and liquidity in Hong Kong’s capital market.” The issuance of convertible bonds by China concept stocks is not something new. However, the combination of global macroeconomic pressure and China’s policy directives makes the latest round unusual. “Amid the current high interest rate environment, the low stock prices of China concept stocks, and China’s supportive policies for overseas financing and outbound business expansion, these companies are issuing convertible bonds to improve their debt structure, expand overseas operations, and repurchase shares,” explains Tian. CORPORATE FINANCE In a surprising turn of events, convertible bonds have become the go-to financial instrument for Chinese companies seeking to raise capital. This trend, led by tech giants like Alibaba and JD.com, is breathing new life into Hong Kong’s capital markets and offering a unique blend of low-cost financing and potential equity upside for investors. As interest rates remain high and traditional equity markets face challenges, convertible bonds are emerging as a strategic tool for companies looking to optimize their debt structures and fund overseas expansion. BY HU YANGXIAOXIAO AND SARAH WONG CONVERTIBLE CRAZE Image: tadamichi/Shutterstock.com
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