Bilibili convertible notes offering eyed; iQIYI remains in focus; Ensco gains

By Abigail W. Adams

Portland, Me., April 2 – The convertibles secondary space was relatively quiet on Tuesday with $75 million on the tape early in Tuesday’s session and $350 million on the tape by the late afternoon.

Market players were focused on the new offering from Bilibili Inc., slated to price after the market close.

Sources pegged Bilibili’s $300 million seven-year convertible notes as cheap based on underwriters’ assumptions. However, some felt the credit spread used was aggressive.

The offering from Bilibili comes on the heels of the successful offering from competitor iQIYI Inc.

iQIYI’s 2% convertible notes due 2025 remained major volume movers in the secondary space with the notes continuing to see slight improvement.

Meanwhile, Ensco plc’s 3% convertible notes due 2024 were active and making gains as crude oil futures continued their upward momentum on Tuesday.

Bilibili eyed

Bilibili plans to price $300 million in seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.375% to 1.875% and an initial conversion premium of 32.5% to 37.5%.

The deal is pricing concurrently with an offering of 10,554,000 American depositary shares with an additional 6,526,487 ADSs offered by selling shareholders.

Underwriters are marketing the deal from the Shanghai-based online entertainment company with a credit spread of 500 basis points over Libor and a 40% vol.

The borrow is about 1%, a market source said.

Using those assumptions, the deal modeled about 1.5 points cheap at the mid-point of talk, a market source said.

However, some sources felt the credit spread was aggressive and pegged assumptions at 700 bps over Libor and a 40% vol.

Using a wider credit spread, the deal modeled about 3 points rich at the midpoint of talk, a market source said.

There is less transparency surrounding ADSs and China-based corporations than domestic corporations.

“You have to discount them because of that,” a market source said.

Bilibili’s ADSs have also only traded on the Nasdaq since March 2018 and have not yet established a firm credit history.

The company’s financials, also, are not great with revenue lacking, another source said.

The competition

The offering from Bilibili comes on the heels of the successful offering from competitor iQIYI.

The Beijing-based online entertainment service provider was able to price $1.05 billion of six-year convertible notes at the rich end of talk with a coupon of 2% and an initial conversion premium of 32.5% on March 26.

Price talk for iQIYI’s offering was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

Despite pricing rich, the convertible notes have skyrocketed since hitting the secondary space, trading up more than 6 points outright and 3 points dollar-neutral since issue.

iQIYI was marketed with a credit spread of 400 basis points over Libor and a 37% vol.

However, the notes have been trading with implied assumptions of a credit spread of 810 bps over Libor and a 42% vol., a market source said.

Bilibili may be trying to ride the wave and capitalize on the success of iQIYI’s offering, a source said.

iQIYI in focus

iQIYI’s 2% convertible notes due 2025 remained in focus in the secondary space with the notes again improving, sources said.

The 2% notes were seen at 106 bid, 106.5 offered on Tuesday afternoon.

The notes were coming in from their highs from Monday when they traded up to 107 on an outright basis.

However, they continued to see slight improvement dollar-neutral, a market source said.

The 2% notes remained among the most actively traded in the secondary space. More than $20 million of the bonds changed hands by the late afternoon.

The Beijing-based online entertainment service provider’s ADSs closed Tuesday at $24.40, a decrease of 1.57%.

Ensco gains

Ensco’s 3% convertible notes due 2024 were active and making gains amid a surge in crude oil futures.

The 3% notes rose 1.375 points to 78.8 in the mid-afternoon with the yield now 8.44%, according to a market source.

More than $8 million of the bonds had changed hands by the late afternoon.

The 3% notes are primarily a yield play, a market source said.

The notes have been under pressure since the sell-off in crude oil futures that began last October. However, the notes have rebounded as crude oil has gained steam.

Tuesday marked another strong day for the energy sector with crude oil futures continuing their upward momentum, which saw them surpass the $60 threshold last Friday.

The barrel price of WTI crude oil for May delivery settled at $62.57, an increase of 98 cents or 1.59% on Tuesday.

Mentioned in this article:

Bilibili Inc. Nasdaq: BILI

Ensco plc NYSE: ESV

iQIYI Inc. Nasdaq: IQ

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.