Convertible bonds are the preferred way of raising funds for Chinese companies listed in New York. Analysts believe that’s an indicator of the market’s confidence in business and business’ need for financing. LexinFintech, a Shenzhen-based company entered into an agreement with Asian PE firm PAG for sale of $300 million worth of seven-year convertible notes. It can be traded for stock at $14 a share just six months after issuance.
Convertible bonds are debt instruments which can be converted into a specified number of shares. These bonds do offer the benefits of bonds like regular interest payments. LexinFintech is an operator of an e-commerce site which is based on installment purchases. It also offers consumer loans, and the stock closed at $11.79 per share up 5% on Thursday.
This news comes after an announcement on Sept 5, by Chinese electric vehicles company Nio. The manufacturer of electric cars said that it had agreed to the issuance of $200 million in convertible notes. This is a split between Tencent’s affiliate and Nio’s CEO and chairman William Li. In January, the company had issued $650 million in convertible notes. Many other U.S. listed Chinese firms have entered into similar financial agreements this year. Video-streaming website iQiyi, YY, and Bilibili are some of the many which have done so.
In the first three quarters of 2019, Chinese firms have announced nearly $7.2 billion in public offerings of private placements, typically convertible debt. This is in contrast to $5.6 billion in the first nine months of 2018. This current figure is very close to yesteryear’s closing total of $7.8 billion.
Analysts have pointed out that financing using the issuance of convertible debt notes is faster than its alternatives. In a low-interest scenario, businesses get capital at attractive rates. Nio and Lexin both made their deals at 2% in September.