Source: Bloomberg

Author: Filipe Pacheco, Sarah Zheng

After raising a total of $ 6.5 billion (S $ 8.7 billion) through Alibaba and JD.com, more Chinese technology companies may turn to convertible bonds.

Alibaba issued $ 4.5 billion in convertible bonds last week, which set a record of the highest convertible bonds in Asian companies. Some of them will be used to repurchase stocks.Prior to this, Ali's competitors JD.com issued a $ 2 billion convertible bond, and the company also had a share repurchase plan.

CECILIA CHAN, an analyst at Bloomberg Industry Research, wrote in the report, "Other Chinese Internet giants may follow suit and use low financing costs to fill in cash outflows caused by stock repurchase and overseas investment."The value is still low, and the popularity of the market is developing in a positive direction.

In November last year, the board of directors of Meituan decided to repurchase no more than $ 1 billion in stocks.Baidu announced in February 2023 a $ 5 billion stock repurchase plan.In the previous year, Netease disclosed a repurchase plan of similar amounts, which is valid for three years.

In the

In high interest rate environment, issuance of convertible bonds is more attractive than ordinary bonds, especially for companies that require foreign exchange but most of their income from domestic.

Alibaba is an example. Taobao and Tmall, which mainly capture the domestic market, have contributed the greatest contribution to Ali.Given that China's strict foreign exchange control limits the ability of funds to transfer to overseas, ensuring that the required overseas funds required for repurchase are a challenge to Ali.

Jingdong and Alibaba's net cash to the market value is very high, so they will choose to issue such bonds.Companies with similar situations such as Baidu may also follow suit.

"Increasing the return on capital is a trend of Chinese technology companies with an underestimation of valuations. Compared with dividends, repurchase stocks are more popular," said Vey-SERN LING, managing director of UNION BANCAIRE PRIVEE."Convertible bonds provide cheaper financing options than ordinary bonds."

Dahua Jixian analyst Julia Pan said that Meituan, Netease, and Pinduoduo are potential companies issuing convertible bonds.

She believes that "other companies with stock repurchase and dividend plans may also turn to financing in the bond market to increase shareholders' return."