China-based convertibles in focus as bloodbath continues; Coinbase, MicroStrategy gain

By Abigail W. Adams

Portland, Me., July 26 – It was a tale of two markets in the convertibles secondary space on Monday as some sectors continued to bleed while others gained.

The bloodbath in China-based companies continued on Monday as investors fled Asian names amid an escalation in Beijing’s regulatory crackdown.

Pinduoduo Inc.’s 0% convertible notes due 2025 and iQIYI Inc.’s 3.75% convertible notes due 2023 remained under pressure in active trading.

While volume in the issues was light, Li Auto Inc.’s 0.25% convertibles due 2028 and Nio Inc.’s 0.5% convertible notes due 2027 also contracted as investors questioned how many sectors would get caught in Beijing’s regulatory crosshairs.

While Asian names remained under pressure, the convertible notes of companies with exposure to Bitcoin were making gains as the cryptocurrency rallied past $40,000 in intraday activity.

Coinbase Global Inc.’s 0.5% convertible notes due 2026 and MicroStrategy Inc.’s 0% convertible bonds due 2027 both improved on an outright and dollar-neutral basis.

More bloodshed

The convertible notes and equities of China-based companies continued to bleed on Monday.

Pinduoduo’s 0% convertible notes were changing hands at 93 versus an equity price of $94.87 early in the session.

They continued to trend lower as the session progressed and were changing hands around 90.125 in the late afternoon.

The notes contracted about 3 points dollar-neutral, a source said.

The notes were among the most actively traded of Monday’s session with about $20 million on the tape.

Pinduoduo’s ADSs traded to a low of $87.35 and a high of $95.33 before closing the day at $88.71, a decrease of 8.84%.

iQIYI’s 3.75% convertible notes traded down to 96.5 versus an equity price of $10.49 early in the session.

They continued to trade on a 96-handle heading into the afternoon.

While the notes were down on an outright basis, they were unchanged dollar-neutral, a source said.

The Beijing-based online entertainment service provider’s ADSs traded to a high of $11.62 and a low of $10.44 before closing the day at $10.92, a decrease of 3.53%.

There was panic selling in the equities of China-based corporations as Beijing amped its regulatory crackdown, Bloomberg reported.

China officially released new regulations for its for-profit education companies over the weekend, which forces them to transform into non-profits and bars them from raising capital or going public.

Market chatter about the new regulations triggered what one source called a “bloodbath” in China-based equities and convertible notes on Friday.

The new regulations come amid an escalation of tensions between the United States and China after a high-level meeting between diplomats over the weekend was reported to have ended in a stalemate.

China’s EV sector

The fire sale in Asian names has been slow to reach China’s electric vehicle manufacturers.

However, Nio’s and Li Auto’s convertible notes were contracting on Monday as investors questioned how far Beijing’s regulatory crackdown would reach.

While volume in the notes was light, Nio’s 0.5% convertible notes due 2026 were down about 3 points outright to 85.

They contracted 1 point dollar-neutral, a source said.

The Shanghai-based electric car manufacturer’s ADSs traded to a high of $44.88 and a low of $41.93 before closing the day at $43.17, a decrease of 1.86%.

Li Auto was one of the only China-based companies to see its stock rise on Monday. However, its convertible notes were weaker on a dollar-neutral basis.

Li Auto’s 0.25% convertible notes due 2028 were relatively unchanged on an outright basis at 124.

However, they contracted about 0.75 point dollar-neutral, a source said.

The Beijing-based electric vehicle manufacturer’s ADSs traded to a low of $28.85 and a high of $31.58 before closing the day at $30.77, an increase of 1.62%.

Li Auto received approval from the Hong Kong exchange for a listing on Monday.

The company also announced on Monday that a member of its audit committee had resigned.

However, the company plans to have three members on the audit committee prior to its IPO on the Hong Kong exchange, it stated in a press release.

Bitcoin rally

Convertible notes with exposure to Bitcoin were on the rise on Monday as the crypto-currency rallied to a six-week high.

MicroStrategy’s 0% convertible notes due 2027 gained on an outright and dollar-neutral basis.

The 0% notes rose more than 6 points outright to change hand at 77.25 in the late afternoon.

They expanded about 0.5 point dollar-neutral, a source said.

Sources were surprised the notes didn’t improve more given MicroStrategy’s stock move.

MicroStrategy’s stock traded to a low of $620.26 and a high of $695 before closing the day at $682.50, an increase of 26.46%.

Coinbase’s 0.5% convertible notes jumped more than 5 points outright to once again top par.

The 0.5% notes, which priced at 99, traded up to 102.625 by the market close.

Coinbase’s stock traded to a low of $237.88 and a high of $249.80 before closing the day at $245.45, an increase of 9.13%.

Bitcoin traded as high as $40,539 on Monday before dropping back down to $37,715, an increase of 9.72%, shortly before 5 p.m. ET.

The rally in Bitcoin was attributed to speculation that Amazon.com Inc. may begin accepting Bitcoin as a form of payment after the company advertised a digital currency and blockchain product lead job position.

Approximately $1 billion in Bitcoin futures was liquidated on Monday as Bitcoin bears exited their short positions, which helped propel it past $40,000.

Mentioned in this article:

Coinbase Global Inc. Nasdaq: COIN

iQIYI Inc. Nasdaq: IQ

Li Auto Inc. Nasdaq: LI

MicroStrategy Inc. Nasdaq: MSTR

Nio Inc. NYSE: NIO

Pinduoduo Inc. Nasdaq: PDD

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