China firms issue record US$14 billion convertible bonds as market revives

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. The previous 12-month high was US$10.9 billion in 2021.

“If you think about the typical sequence in which the markets reopen, it’s typically blocks, primary equity and convertibles that will lead and the last product to reopen is IPOs,” said Saurabh Dinakar, co-head of Asia-Pacific global capital markets at Morgan Stanley

“In the past two years, we didn’t see activity across any of the products. And frankly, there was a lack of conviction from international investors around investing in Hong Kong and China. I think what’s changed over the last three months is that some of the confidence has returned.”

Dinakar said international investors have shown renewed interest in recent Chinese deals since they exited the market as China recovered from the pandemic.

“Investors want to talk about China, and they want to understand what’s going on in China. There has been an uptick in the dialogue. It’s not that they are going to rush back in, given there’s still a degree of caution, but at least there is a dialogue which was not the case 12 months back,” he said.

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 per cent, according to LSEG.

Investors buy convertible bonds because they offer the prospect of equity gains while still paying a coupon, and with their principal repaid at maturity if the option to convert into shares is not exercised.

Bank of America recently upgraded its full-year global convertible bond issuance forecast by 11 per cent and now expects there to be up to US$110 billion worth of deals in 2024.