Kingsoft, a Hong Kong-listed software company, raised HK$2.327 billion ($300 million) on Thursday evening from the sale of a convertible bond, taking advantage of the continued strong demand for Asian equity-linked deals.
The company, which makes a popular suite of office software, online games and antivirus tools, also benefited from the current popularity of Chinese tech companies, most of which are listed in the US. Kingsoft therefore offers a rare opportunity for non-US investors to get exposure to the sector.
It launched the deal at around 5.30pm on Thursday and had closed the books by 8.30pm with close to $2 billion of orders, having capped bids at $25 million. With such strong interest, the unrated company succeeded in pricing the deal later in the evening at the tight end of the range — a 40% conversion premium, 1.25% coupon and an implied volatility of 34%.
Those terms are considerably more aggressive than its debut CB last July, when it raised $175 million at 3% with a 28.5% premium and an implied volatility of about 25%.
The latest deal offers similar terms to those achieved recently by Kingsoft’s US-listed peers. Indeed, the implied volatility is even higher than issuers such as YY.
The deal had a standard structure with a five-year maturity, a three-year investor put and a three-year issuer call subject to a 130% hurdle. It launched with a base deal of about $250 million plus an upsize option of $50 million, though the stock is denominated in Hong Kong dollars.
Even at the marketed range it was a much keener deal than last time, with a coupon ranging from 1.25% to 1.5% and a conversion premium of 35% to 40% over the HK$31.35 closing price on Thursday, which resulted in a range of HK$42.32 to HK$43.89. The stock’s record high closing price of HK$32.30 was on April 1, two days before the deal launched.
The company listed in Hong Kong in October 2007 after raising $99 million in an initial public offering that was priced at HK$3.60 per share.
Kingsoft’s stock performance certainly justifies optimism. Its previous deal, which had the same structure, was in the money two months later and by Thursday the stock was up more than 150% since the July deal.
A source said the deal attracted a balanced mix of hedge funds and outright investors. There was no stock-borrow facility available but there was roughly $50 million to $75 million of borrow available in the market at 1.5%, according to the same source.
The deal was marketed with a credit spread of 400bp and with the implied volatility at 34% this produced a bond floor of 89%, which is low for Asian CBs but acceptable to investors based on the company’s low debt levels and its strong market position.
In another encouraging sign for investors, Kingsoft is also about to spin off one of its business units, Cheetah Mobile, in an IPO on the New York Stock Exchange.
Morgan Stanley and JP Morgan were joint global coordinators and bookrunners for the CB, a repeat of the company’s first deal.
The bond was said to be trading at 101 on Friday, while the stock was down roughly 4.5%.
It was a busy evening for JP Morgan as the bank also priced a deal for 51job, a Chinese recruitment company listed on Nasdaq.
Despite having a stock that trades just $3 million a day at a low volatility of 30%, the company succeeded in raising $172.5 million with a coupon of 3.25% and a conversion premium of 25%. At 22% implied volatility, it also came with a small discount to actual vol.
The deal attracted strong orders, allowing the company to upsize from $150 million, but investors were sensitive to the price, which meant printing the deal at the generous end of the range. It was helped along by the company’s provision of a $50 million stock-borrow facility that came at an overall cost of roughly 1.5%. The credit spread was 650bp.