Kingdee International Software beat a three-day selloff in technology stocks to raise $150 million from a convertible bond late on Monday.
Chinese internet companies in particular have taken a beating, with shares in Tencent dropping 4.5% on the week’s first day of trading. Kingsoft, a Hong Kong-listed Chinese software company that issued a convertible bond on Friday, lost 6% on Monday, its fourth consecutive day of losses.
The conditions clearly made it difficult for Kingdee, whose own share price had fallen 10% since April 1, but it was confident that it could get a deal done after sounding out a small group of investors before the launch.
With several anchor orders in the bag, the company was able to launch the deal with a coupon range of between 3.5% and 4% and a conversion premium of 25% to 30%.
Kingdee chose to use a three-day average as the reference share price given the selloff on the stock exchange. At HK$3.0461, this fixed the conversion range at HK$3.81 to HK$3.96. However, that range translated to a conversion premium of 30.85% to 36.08% for investors who preferred to look at the Monday closing price, which was HK$2.91.
Oriental Gold, a company controlled by Kingdee chairman Xu Shao Chun, provided 130 million shares as a hedge facility for investors, which was worth roughly $50 million.
The deal had a standard structure with a five-year maturity and a three-year investor put option. It launched with a base deal of about $150 million plus an upsize option of $25 million.
The books closed by 9pm and joint global coordinators Credit Suisse and Macquarie later priced the deal towards the investor-friendly end of the range, with a 4% coupon and a HK$28.03 conversion premium (or 34.02%, based on the day’s closing price).
Kingdee not Kingsoft
Similarities to Kingsoft’s deal on Friday end with the two companies’ names. Kingdee has a market capitalisation of less than $1 billion and its stock turns over $15 million to $20 million a day, while Kingsoft is about five times bigger.
Kingdee is also less sexy. It sells enterprise software to big Chinese companies, often state-owned, and its growth is closely correlated to the broader economy, whereas Kingsoft revenues are growing at more than 100% and is about to spin off one of its best business units through an initial public offering of shares in the US, where valuations are higher. That helped it to secure aggressive pricing.
However, Kingdee gave investors small cause for excitement when it said in the term sheet that it was raising the capital to invest in “cloud-management and particularly mobile internet technologies”, as well as for acquisitions and general corporate purposes.
Investors were using a credit spread of 600bp to 650bp and an implied volatility of 25% to 28%, which gave a bond floor 90% to 91%. The bonds were said to be trading slightly up on Tuesday, while the stock was down 7%.
The deal was issued through Crotona Assets, a British Virgin Islands company owned 100% by Kingdee.
