By Abigail W. Adams
Portland, Me., Dec. 18 – The secondary market was off to a whimper Monday with trading activity expected to be light for the duration of the week, market sources said. There was about $300 million in trades by late afternoon.
“People are starting to close down now,” a market source said.
While the trading activity was light, Bristow Group Inc.’s newly priced 4.5% convertible notes due 2023 continued to attract attention and make gains. The notes reached new heights during Monday’s session.
Vipshop Holdings Ltd.’s 1.5% convertible notes due 2019 were in focus during Monday’s session and made nominal gains as the underlying equity soared.
Akamai Technologies Inc.’s 0% convertible notes due 2019 also saw some action during Monday’s session and traded above par, which is unusual for the notes.
Vipshop and Akamai are two unique companies but their convertible notes followed a similar story on Monday. Both companies saw their equities skyrocket Monday after investors announced they were taking a stake in the respective companies.
However, both companies’ stock prices pale in comparison to the conversion price of their convertible notes. While Akamai traded above par during Monday’s session, it is not expected to continue to trade in that range, a market source said.
Bristow getting stronger
Bristow’s 4.5% convertible notes due 2023 reached their highest heights since the notes were priced on Dec. 13.
The notes climbed about 1.5 points into the 105 range Monday, ending the day at 105.875, according to Trace data. Bristow’s stock was also up on Monday, ending the day at $12.49, an increase of 1.38%.
There is strong demand for new paper in the market causing high valuations for new issues of convertible notes, market sources said. The majority of new deals have expanded on their secondary market debut, despite most pricing on the rich end of talk.
Unlike most new sales, Bristow priced within talk for a higher than average coupon. The initial conversion premium of 25% was also lower than the average initial conversion premium seen in new deals over the past year.
Akamai’s unusual rise
Akamai Technologies Inc.’s 0% convertible notes jumped above par during Monday’s session, a unique move for the notes, which have stayed below par for most of the year.
The notes were trading in a range of 100.25 to 101.873 before closing the day at 101.058, according to Trace data. Akamai stock was up 13.69% to close the day Monday at $65.67.
The Cambridge, Mass.-based content delivery network and cloud service provider’s equity received a jolt on Friday when hedge fund Elliott Management disclosed it had taken a 6.5% stake in the company.
However, the rise in equity is not expected to have a sustained impact on the 0% convertible notes, which have a delta of 9%, a market source said.
With a conversion price of $89.56 and maturity a little more than a year away the convertible is “so far out of the money, it shouldn’t really move,” the source said.
“The reality is this is a good piece of straight debt,” the source said. The only reason the convert should trade above par is if the notes reach their conversion price in a year, the source said.
B. Riley analysts boosted Akamai’s target price for stock Monday to $85 from $70. Credit Suisse analysts boosted their target price for Akamai stock to $75 from $55. Both still fall short of the conversion price on the 0% note.
Vipshop in focus
Vipshop’s 1.5% convertible notes due 2019 were the focus of trading activity on Monday, with the notes making nominal gains as its underlying equity soared. The notes climbed about 2 points to close Monday’s session at 99.
The 1.5% convertible notes came close to par in active trading, reaching a height of 99.94, according to Trace data. The Guangzhou, China-based e-commerce company’s American Depository Shares skyrocketed Monday after Tencent and JD.com announced their investment in the company.
Tencent, an internet holdings conglomerate which recently achieved the rank of Asia’s first $500 billion company, has agreed to buy $604 million of Vipshop shares. Tencent is partnering with Beijing-based e-commerce company JD.com, which has agreed to buy $259 million of Vipshop shares, lifting the total size of the investment to $863 million.
The investment will give Tencent a 7% stake in the company and JD.com a 5.5% stake. The investment is geared towards taking on rival e-commerce company Alibaba.
Vipshop’s equity soared after news broke about the investment. The company’s American Depository Shares were at $11.75 at market close, an increase of 39.22%. Each depository share represents two ordinary shares of the company.
However, the conversion price on the 1.5% notes is $20.124 per American Depository Share, according to the Prospect News database. At issuance the conversion price was $201.24 but there has subsequently been a ratio change for the ADS.
Mentioned in this article:
| Bristow Group Inc.: | NYSE: BRS
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| Akamai Technologies Inc.: | Nasdaq: AKAM
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| Vipshop Holdings Ltd.: | NYSE: VIPS
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