Qihoo 360, a Chinese internet company, sold Asia’s biggest convertible bond for three years on Thursday, raising $900 million.
The deal was structured into two equally sized tranches, one with a six-year maturity and three-year put, and the other with a seven-year maturity and five-year put. This unusual structure was designed to avoid overlapping with its existing $600 million convertible, which is puttable in 2016 and matures in 2018.
The two tranches were offered with different terms. The three-year notes priced in the middle of the range with a 0.5% coupon and a 37.5% conversion premium, while the five-year deal came with a 1.75% coupon and a 32.5% premium.
Those terms are referenced against Thursday’s closing price of $91.15, which fell from $104 during the week amid a weak market backdrop driven by news of an Argentina default, resulting in the sharpest drop in global equities in five months.
It is not easy to understand what Qihoo will do with the $900 million (or $1,035 million if the greenshoe option is exercised), though such a large amount of money would clearly allow the company to consider acquisitions.
Qihoo makes free internet and mobile security products, as well as offering a search engine, and generates revenue by using its web traffic to sell advertising and online games. This is a crowded space in China, but Qihoo claims impressive market share and revenue growth of more than 100% has pleased analysts.
Investors were also evidently keen to buy the company’s CB. Having wall-crossed a group of investors before launching the deal, joint bookrunners Citi and Credit Suisse eventually booked $2.5 billion of demand from more than 110 accounts. Qihoo had gone out with a deal size of $600 million but was able to increase this thanks to the strong demand.
By the time the deal closed on Thursday evening in New York, 62% of the allocation had gone to US investors, while Asia and Europe took 19% each.
It is the biggest convertible deal in Asia since Lotte Shopping’s $900 million deal in 2011.