Morning Commentary: Sea convertible notes in focus in early trading as equity plummets

By Abigail W. Adams

Portland, Me., Jan. 4 – There was an uptick of activity in the convertible secondary space on Tuesday with convertible issuers seeing huge stock moves.

Equity markets were mixed with the Dow Jones industrial average and S&P 500 index hitting fresh records early in the session while the Nasdaq Composite and the Russell 2000 index sank into negative territory.

However, the S&P 500 was dragged into negative territory as the session progressed.

The Dow was up 251 points, or 0.69%, the Nasdaq Composite was down 1.86%, the S&P 500 was down 0.27% and the Russell 2000 was down 0.13% shortly before 11 a.m. ET.

The ADR space was under particular pressure early Tuesday as concern over a contagion from China Evergrande Group’s collapse again reared its head.

There was $116 million of convertibles trading on the tape about one hour into the session.

Sea Ltd.’s 0.25% convertible notes due 2026 were in focus with the Singapore-based global consumer internet company’s equity again on the decline.

The 0.25% notes sank about 2 points outright with the company’s equity down more than 10%.

The notes were changing hands at about 90 early in the session with a yield to maturity of about 2.5%, a source said.

The notes were trading with a spread of 116 basis points over Treasuries with a similar duration, which one source felt was tight.

“They’re holding up better than expected,” the source said, pegging the bond floor for the notes between 85 to 87.

Sea’s American Depositary Shares traded down to $196.80, a decrease of 11.9%, shortly before 11 a.m. ET.

Sea’s equity, which has been on a downward trend since mid-November, was under added pressure following news Shenzhen, China-based gaming company Tencent Holdings Ltd. plans to cut its stake in the company.

Tencent plans to sell 14.5 million shares within the price range of $208 to $212, Reuters reported.

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