Qihoo 360 Technology, a Chinese internet service company, has raised $600 million from a convertible bond, the largest ever issued by a US-listed mainland company and the largest dollar convertible bond in Asia since 2011.
The offering from the company, which specialises in developing internet and mobile security products, was completed on an accelerated basis in order to minimise risk from potential fluctuations in the US market.
Citigroup, the sole global co-ordinator, launched the bond offering with a base size of $550 million early on Wednesday morning, with an over-allotment of $50 million, which was fully exercised.
The conversion premium was set at 40%, the middle point of the guidance of 35%-45%. The initial conversion price is $110.964, based on the closing of $79.26 on August 27, the reference price.
Qihoo’s bond has a five-year maturity, a three-year investor put option and a three-year issuer call on the condition that the premium reaches above 30%. The coupon was fixed at 2.5% at launch. Under the conditions that the conversion premium is 35%-45%, the credit spread is 400bp-450bp. The maturity date is on September 15, 2018.
Strong US interest provided good initial momentum with the base deal size covered prior to Asian open. The book closed in the US earlier than expected on Wednesday night, enabling minimal exposure to market risks. Some investors had planned to short in the market to hedge their positions and were eager to confirm how much notes they could get before the market opening, said sources familiar with the situation.
The book was heavily anchored with decent orders and four times covered at the price. Around 130 investors participated in the deal, including hedge funds, long-only funds and existing shareholders. Geographically speaking, Asian investors and those from the US are basically equal but there are a little more Asian investors than US.
The offering was launched at this time because Qihoo’s stock price reached an all-time high at $79.26 on August 27. The price has risen 167% in 2013 and 447% since listing in 2011.
It also captured strong investor appetite for tech-company papers. According to a source, the deal marks the 18th tech deal and 10th software deal out of the US, and the tech sector has outperformed the indexes and most other sectors.
The company had net income of $64.13 million in the second quarter. It has very little debt and hence is viewed as a strong credit. The company has no ratings by major agencies.
China Renaissance Securities and UBS are joint bookrunners.
According to a term sheet, the proceeds from the bond will be used for general corporate purposes. However, market analysts said the company has targeted to acquire a search engine company in China. Media reported in July that Qihoo was in talks to buy Sohu’s Sogou search business, China's third-largest search engine firm.