Convertibles sideways as equities rip; Asian convertible notes bid up; health care eyed

By Abigail W. Adams

Portland, Me., Jan. 6 – While equity markets surged on Friday in response to the latest U.S. non-farm payrolls report, the convertibles secondary space was lagging with few making moves in the space.

Equity indexes eliminated their losses from a volatile week as markets rallied in response to the slowing wage growth reflected in the report.

The Dow Jones industrial average closed Friday up 700 points, or 2.13%, the S&P 500 index closed up 2.28%, the Nasdaq Composite index closed up 2.56% and the Russell 2000 index closed up 2.26%.

However, volume in the space was light with $80 million in reported convertibles trading volume about one hour into the session and $400 million on the tape heading into the market close.

While a largely sideways day for the convertibles space, bonds trading in the 75 to 80 range were bid up, a source said.

Asian names were in focus with several convertible notes doing “a 360” with the outsized yields now being chased as investor confidence in the sector grows.

Bilibili Inc.’s 0.5% convertible notes due 2026 were in focus with someone “paying a high price for the notes,” a source said.

Pinduoduo Inc.’s 0% convertible notes due 2025 were also on the rise with the put date in less than one year.

iQIYI, Inc.’s convertible notes were sought after but hard to find as they continued to ride the wave of positive sentiment from the completion of a private placement and renewed interest in China-domiciled companies.

While the secondary space was quiet, health care names were eyed on the eve of JPMorgan’s health care conference, which is set to launch on Monday.

The conference was poised to start with a positive tone following news the Food and Drug Administration approved Biogen Inc.’s Alzheimer’s drug.

Asian names in demand

In a dramatic about face in investor sentiment, the convertible notes of China-domiciled companies were in demand with the astronomical yield offered on some notes too attractive to ignore in the face of China’s reopening.

Bilibili’s 0.5% convertible notes due 2026 were active on Friday with someone “paying a high price for the notes,” a source said.

The 0.5% notes were up about 0.75 point to trade as high as 79.75, a source said.

The notes are largely a yield play with a put date of Dec. 1, 2024.

However, Bilibili’s equity traded to a high of $28.98 and a low of $27.51 before closing the day at $28.65, a decrease of 1.88%.

Pinduoduo’s 0% convertible notes due 2025 were also active with the put date for the notes less than one year away.

The notes rose another 0.5 point outright after making strong gains throughout the week.

The notes climbed to a 95-handle and were wrapped around 95.5 heading into the market close.

The convertibles are putable on Dec. 1, 2023 and were yielding about 5.25%, a source said.

The 0% notes have made strong gains throughout the week with the notes opening the year on a 93-handle.

They were trading in the mid-to-high 80s in December.

While the yield on the notes pales in comparison to some other ADR names, the Shanghai-based e-commerce company has a market cap of $121 billion and there is little doubt about its ability to cover the notes’ redemption.

Pinduoduo’s American Depositary Shares traded to a high of $96.49 and a low of $93.11 before closing the day at $95.96, an increase of 0.56%.

iQIYI’s convertible notes remained sought after but hard to find in the secondary space in a dramatic reversal of investor sentiment.

“There are no IQs around,” a source said referring to the stock symbol of the issuer. “People are looking for those.”

iQIYI’s notes climbed another 1 point to 91 in light volume.

The notes have climbed 10 points over the past week.

iQIYI’s 4% convertible notes due 2026 climbed 5 points in light volume.

The notes traded as high as 75 in intraday activity but stood poised to close the day at 74.

“You couldn’t give those away at 55” in December, a source said.

iQIYI’s convertible notes have surged since the Beijing-based streaming service announced it had closed a $500 million private placement of 6% convertible notes due 2028.

Concern the company would not be able to complete the private placement sparked heavy selling in the convertible notes in December.

Asian names have sparked investor interest in the New Year as Beijing Covid-policy shifts and the country moves toward reopening.

Mentioned in this article:

Bilibili Inc. Nasdaq: BILI

iQIYI, Inc. Nasdaq: IQ

Pinduoduo Inc. Nasdaq: PDD

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