China’s $1tn scramble for convertible bonds reflects hot market

Bidding for new deals including Shanghai Pudong Development Bank stuns investors

Chinese companies have issued a record $40bn in convertible bonds this year, according to Dealogic

Hudson Lockett in Hong Kong YESTERDAY

New debt and equity offerings often draw a crowd.

But when investors last month placed more than $1tn worth of orders for a convertible bond issued by Shanghai Pudong Development Bank, about 140 times the $7bn raised, it was enough to shock even the most seasoned China investor.

That $1tn is almost as large as the entire stock-market capitalisation of Apple or Microsoft — two of the biggest companies in the world. “It was a ridiculous amount,” said Gerry Alfonso, head of research at Shenwan Hongyuan Securities in Shanghai.

As so often with runaway deals, the over-bidding in part reflects quirks in the way new debt and equity end up in investors’ hands. But it also reflects a surge in issuance of these equity-linked instruments in China — a rise helped by an unusual embrace of the product by policymakers better known for cracking down on financial innovations to ensure stability.

So far this year, Chinese companies have issued a record $40bn in convertible bonds, up more than 80 per cent from the full-year total in 2018, according to Dealogic.

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