Qihoo bonds rise outright, on swap with higher Asian stocks; Mylan trades up outright

By Rebecca Melvin

New York, April 8 – Convertibles were better bid on Wednesday as demand for Asian internet bonds pulled those names higher following positive overnight trading of Asian stock markets. That sector strength seemed to spill over into other areas of the convertibles market, sources said.

Ctrip.com International Ltd. continued to trade actively after a busy Tuesday, and convertibles players moved into related names, including Qihoo 360 Technology Co. Ltd., which saw its three convertible bond issues expand on a swap basis amid an 11% jump in the underlying shares of the Beijing-based internet and mobile security products company.

Vipshop Holdings Ltd.’s 1.5% convertible notes due 2019 were also up, changing hands last at 158, according to Trace data, compared to 154 on Tuesday.

There seemed to be contagion to the remainder of the convertible space.

“Generally, I feel like stuff is better to buy. The Chinese converts this morning were all better with the Chinese equity market better overnight,” a New York-based trader said.

Also early in the day, energy convertibles saw some strength amid a flurry of trading following news about the bid by the Shell oil and gas company for British rival BG Group for about $70 billion.

“Some of the energy names were better on the back of the Shell bid for BG Group,” a trader said.

Chesapeake Energy Corp.’s 2.5% convertibles were among issues that were better. “They traded up about 0.5 point to 0.75 point on an outright basis,” the trader said, but in afternoon trading, the energy sector was quiet.

Deal news also seemed to inspire trading in the health care space.

Mylan NV said it has made a bid for rival generic drug company Perrigo Co. plc for $205.00 per share, or almost $29 billion, a combination that would create a global pharmaceutical leader with a broad and diverse portfolio across branded, generic and OTC products.

Mylan’s 3.75% convertibles due in September surged to about 510 from 450 while shares of the Potters Bar, England-based generic and branded drug maker jumped 15%.

Teva Pharmaceutical Industries Ltd.’s 0.25% convertibles due 2026 was heavily traded and among the top volume names of the day, according to Trace data. The bonds of the Israel-based generic and branded drugmaker gained about 4.5 points to 157.

WebMD Health Corp. was in focus in the early going after Goldman Sachs downgraded the shares of the Elmwood Park, N.J.-based provider of online medical information. But Goldman subsequently retracted the downgrade, restoring the company to “neutral” from ‘buy,” and blaming its mistake on improper accounting of the company’s convertibles.

Goldman Sachs didn’t immediately return calls about the retraction. But the bonds regained any move lower on the day.

Palo Alto Networks Inc.’s 0% convertibles due 2019 traded up about 2 points on an outright basis to 143.735 as shares of the California-based cybersecurity company gained $2.44, or 1.7%, to $147.27.

News that Singapore Telecommunications Ltd. made a bid to buy Trustwave, another U.S.-based cyber security company, seemed to stir interest in Palo Alto.

Tesla Motors Inc.’s convertibles also popped after news of upgrades for its Model S car, including a larger battery and all-wheel drive.

The Tesla 1.25% convertibles traded up to 88.75 versus a share price of $208.00 and were better by 1 point on a dollar-neutral basis, a trader said.

The Tesla 0.25% convertibles were up as well, with a dollar-neutral expansion of about 0.5 point.

“The bonds are higher, and outperformed the stock,” a New York-based trader said.

The Tesla convertible bonds have been trending better for the last month or so, following weakness from December to the middle of February, the trader said.

Meanwhile, after the market close, Alcoa Inc. unofficially kicked off the new earnings season with a mixed report. The New York-based aluminum company swung to a first-quarter profit from a year-earlier loss and revenue was higher, boosted primarily by its automotive and aerospace businesses. Revenue was higher but missed estimates.

Alcoa reported net income of $195 million, or 14 cents a share, compared with a year-earlier loss of $178 million, or 16 cents a share. Excluding one-time items, per-share earnings were 28 cents, compared to 9 cents in the year-earlier period.

Revenue increased 6.7% to $5.82 billion. Analysts expected per-share profit of 26 cents and revenue of $5.94 billion.

Qihoo expands on swap

Qihoo was a winner of a ground swell of demand for Asian internet names on Wednesday.

Qihoo’s 0.5% convertibles due 2020, or A tranche, were quoted late in the session at 87.625 with the underlying shares at around $60.00.

That was better by about 0.75 point on swap, a New York-based sellsider said.

Qihoo’s 1.75% convertibles due 2021, or the Bs, were also better by 0.75 point on swap, changing hands at 82.25, according to Trace data.

The older Qihoo 2.5% convertibles due 2018 were better by about 0.5 point on swap, changing hands at 97.5.

Qihoo shares rose $6.03, or 11%, to $60.03 in heavy volume. That level is within $1.00 of its 52-week high.

Strength in Asian markets overnight was cited for the gains in the Asian internet securities. The Shanghai Composite had gained 0.84%, the Hang Seng index in Hong Kong rose 3.6%, and the Nikkei stock market added. 0.8%.

“Asian internet names are trading after the Asian market was up yesterday,” the sellsider said.

Ctrip’s 1.25% convertibles due 2018 traded on an outright basis at 106.75, the sellsider said.

The Ctrip bond was also seen to have traded higher to 109, according to Trace data, as shares of the company were on the rise again. The shares were last up $2.14, or 3.5% at $63.35.

Other China convertible names include E-House (China) Holdings Ltd., SouFun Holdings Ltd. and YY Inc.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Chesapeake Energy Corp. NYSE: CHK

Ctrip.com International Ltd. Nasdaq: CTRP

Mylan NYSE: MYL

Palo Alto Networks Inc. Nasdaq: PANW

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Tesla Motors Inc. Nasdaq: TSLA

Teva Pharmaceuticals Industries Ltd. Nasdaq: TEVA

Vipshop Holdings Ltd. Nasdaq: VIPS

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