Morning Commentary: Bilibili convertible notes offering eyed

By Abigail W. Adams

Portland, Me., April 2 – China-based corporations remained in focus on Tuesday with market players eyeing a new offering from Bilibili Inc.

Bilibili plans to price $300 million 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.

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

iQIYI 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 about 7 points outright and 4 points dollar-neutral since issue.

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

The 2% notes were changing hands at 106.5 early in Tuesday’s session.

The Beijing-based online entertainment service provider’s ADSs were $24.27, a decrease of 2.1%, shortly before 11 a.m. ET.

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