Morning Commentary: Baozun’s new converts hit the market, trade ‘all over the place’

By Abigail W. Adams

Portland, Me., April 5 – The convertible secondary space’s week ended as it began – with the convertible notes of China-based corporations in focus.

New paper from Baozun Inc. hit the secondary space on Friday although trading activity surrounding the notes was lighter than expected.

Baozun priced $225 million of five-year convertible notes after the market close on Thursday at par with a coupon of 1.625% and an initial conversion premium of 30%.

Pricing came at the midpoint of talk for a coupon of 1.375% to 1.875% and at the cheap end of talk for an initial conversion premium of 30% to 35%, according to a market source.

In connection with the offering, the Shanghai-based e-commerce service company entered into lending agreements and will lend a total of 4,230,776 American Depositary Shares to affiliates of the initial purchasers of the notes.

Baozun priced an initial 2,250,000 ADSs at $40 per ADS to establish the initial borrow facility.

The notes were trading “all over the place,” a market source said, with the discrepancy in trading levels largely due to the borrow facility.

The 1.625% notes were at par with stock unchanged early in the session. They were changing hands between 101.5 and 102.5 as stock climbed.

With the notes priced off of the $40 ADS offering, they were trading up about 0.5 point on swap, a market source said.

However, for outright trades, the notes were contracting.

While the notes modeled cheap, the borrow facility complicates trading of the notes, a market source said.

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