Markets firm in new year; Lumentum, RingCentral active; China-based converts gain

By Abigail W. Adams

Portland, Me., Jan. 2 – The convertible secondary space was firm at the start of the new year with equity markets strong and the American Depositary Receipts of several China-based convertible issuers on the rise.

However, activity was muted with trading volume light following the midweek New Year’s Day holiday.

While the day started off with decent trading volume with $50 million on the tape about one hour into Thursday’s session, there was only $200 million in reported volume by the late afternoon, sources said.

Lumentum Holdings Inc.’s 0.5% convertible notes due 2026 were again the most actively traded issue in the secondary space with the notes continuing to gain on an outright basis as stock broke out to a new 52-week high.

RingCentral Inc.’s 0% convertible notes due 2023 were also active with a large seller in the market.

Thursday was a strong day for several China-based convertible issuers as their equity soared following monetary policy easing in China.

While slow to trade, the convertible notes of several China-based companies, such as Bilibili Inc., iQIYI Inc. and Pinduoduo Inc., gained.

Lumentum’s new high

Lumentum’s 0.5% convertible notes due 2026 remained the most actively traded issue in the secondary space on Thursday.

The notes continued to gain on an outright basis with stock again on the rise. The 0.5% notes were changing hands at 110.5 early in the session and were just shy of 111 in the late afternoon.

“They’re doing well,” a market source said.

The 0.5% notes saw more than $18 million in reported volume during Thursday’s session.

Lumentum stock broke out to a new 52-week high on Thursday following an analyst upgrade.

Stock closed Thursday at $82.7, an increase of 4.29%.

The previous 52-week high was $80.52.

MKM Partners raised their price target on Lumentum stock to $91 from $75.

RingCentral active

RingCentral’s 0% convertible notes due 2023 were also among the volume movers during Thursday’s session.

The deep-in-the-money convertible notes, which are typically slow to trade, saw more than $12 million in reported volume and up to $100 million in estimated volume by the late afternoon, sources said.

However, the activity was driven by a large outright seller capitalizing on a strong day for the cloud-based communication company’s equity.

The 0% notes were changing hands just shy of 213.

RingCentral stock closed Thursday at $173.19, an increase of 2.68%.

The bonds become callable in September subject to a 130% hurdle.

China-based converts

While volume was light, the convertible notes of several China-based companies were firm on Thursday as their equity soared on the heels of stimulus from China’s central bank.

The convertible notes of several China-based issuers were up 0.5 point dollar-neutral across the board, a market source said.

Bilibili’s 1.375% convertible notes due 2026 rose almost 7 points outright with the Shanghai-based online entertainment company’s ADRs up over 13% in intraday trading.

The 1.375% notes were changing hands at 107.5 in the late afternoon. However, there was only $3 million in reported volume on the tape, a source said.

The ADRs traded as high as $21.89 before closing Thursday at $20.95, an increase of 12.51%.

Bilibili’s 1.375% convertible notes were part of a wave of issuance from China-based companies in 2019 that priced in the early part of the year and got clobbered as equity sank due to trade tensions.

The 1.375% notes have languished below par since pricing in April 2019.

However, the notes closed 2019 above par, trading up to 100.75 on Dec. 31, according to Trace data.

iQIYI’s 2% convertible notes due 2025 also popped above par on Thursday after trading below par since May.

The 2% notes traded up to 102.5 Thursday afternoon.

The Beijing-based online video platform’s ADRs closed Thursday at $22.97, an increase of 8.81%.

Pinduoduo’s 0% convertible notes due 2024 rose to 120.75 Thursday afternoon.

The Shanghai-based e-commerce platform’s ADRs closed Thursday at $41.23, an increase of 9.02%.

The equity of China-based companies was on the rise on Thursday after an earlier-than-expected cash injection from China’s central bank, which many interpreted as a signal for further monetary easing, Bloomberg reported.

Mentioned in this article:

Bilibili Inc. Nasdaq: BILI

iQIYI Inc. Nasdaq: IQ

Lumentum Holding Inc. Nasdaq: LITE

Pinduoduo Inc. Nasdaq: PDD

RingCentral Inc. NYSE: RNG

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