China's YY benefited from buoyant US markets on Tuesday as the Nasdaq-listed internet company raised $400 million from a keenly priced convertible bond.
The company previously tried to raise $250 million through a CB in November but that deal overlapped with a CB from rival Chinese internet company Sina and faced tougher market conditions. Sentiment has improved significantly since then, with many Chinese internet stocks surging to record highs.
YY is not the first to take advantage of this renewed interest. Vipshop, another Chinese Nasdaq-listed company, issued a $550 million CB last week to take advantage of a more-than-doubling of its share price since the start of the year.
Similar momentum has this year helped lift the value of YY's shares by more than 50%, a trend given extra impetus recently after the company said it made a profit of $79 million in 2013 compared with $14 million in 2012.
“These results were driven by the greater operating leverage of our platform, which has increasingly been able to attract and engage massive audiences in a cost-effective manner through viral online marketing as well as self-promotions by performers and channel owners within our platform,” said chief financial officer Eric He in the company’s earnings announcement.
YY, which made its Nasdaq debut in 2012, hosts an online social platform where more than 90 million active monthly users watch and take part in various group activities, including karaoke, games and music concerts.
In addition to the initial $400 million raised through the CB, which pays a coupon of 2.25%, there is a possible greenshoe of $60 million. The deal was marketed with a credit spread of 600bp and an implied volatility of 29%, representing an 11-point discount from historical volatility and resulting in a bond floor of 87.5.
The three-year put option will trigger conversion into the shares at $110.70, or a 40% premium to the $82 closing price as of Tuesday.
These terms were seen at the investor-friendly end of the range but compared favourably with Vipshop, which priced at a 10-point discount to historical volatility and came with a 1.5% coupon, a 40% conversion premium and a bond floor of 84.
Both deals were launched during European and Asian trading hours, which helped to build momentum before the US open. It also led to a better quality book for YY, thanks to several large bids from outright investors in Europe.
The YY bond traded flat as a result of these solid orders and the share price even rose slightly, helped in large part by strong gains on the broader market.
Hedge funds also played a role as stock was available to borrow at 100bp for the full size of the deal.
Citi, Deutsche Bank and Morgan Stanley were joint bookrunners.