Pinduoduo convertible offering eyed; Guardant expands on debut; iQIYI drops outright

By Abigail W. Adams

Portland, Me., Nov. 17 – New paper was in focus in the convertibles market on Tuesday with one large offering set to price after the market close and another making its aftermarket debut.

Pinduoduo Inc. plans to price $1.75 billion of five-year convertible notes after the market close.

The large offering from the Shanghai-based e-commerce platform looked cheap based on underwriters’ assumptions, a source said.

However, with the deal coming with a fixed coupon of 0% and stock recently hitting a new 52-week high, some sources were not enamored with the offering.

Meanwhile, Guardant Health Inc.’s newly priced 0% convertible notes due 2027 dominated activity in the secondary space with the notes expanding on debut.

Outside of the new paper, the secondary space was relatively quiet.

Guardant’s new paper accounted for more than 30% of the $649 million in reported volume about one hour before the market close.

However, iQIYI Inc.’s 2% convertible notes due 2025 were also active with the notes tanking on an outright basis as its equity got crushed following the Beijing-based streaming company’s third-quarter earnings report.

Pinduoduo eyed

Pinduoduo plans to price $1.75 billion of five-year convertible notes after the market close on Tuesday with initial price talk for a fixed coupon of 0% and an initial conversion premium of 40% to 50%.

Underwriters were marketing the deal with assumptions of 350 basis points over Libor and a 40% vol., which modeled about 3 points cheap at the midpoint of initial talk, sources said.

However, pricing was heard to have tightened during bookbuilding with the deal set to price with an initial conversion premium of 52.5%.

The deal is pricing concurrently with a secondary offering of up to 22 million ADS.

The offerings come just after Pinduoduo’s ADSs set a 52-week high of $155.61 in intraday trading last Friday.

Pinduoduo is set to become the latest issuer to price a deal with a 0% coupon – a growing trend in the convertibles universe.

“That won’t turn out well in the long run,” a source said.

While the notes were bid up 0.25 to 1 point in the gray market, it is not expected to trade well on Wednesday given the tight pricing, another source said.

The $1.75 billion megadeal is the Shanghai-based e-commerce company’s second pass at the convertibles market.

While sources were not enamored with the latest offering, the company’s outstanding 0% convertible notes due 2024 are deep in-the-money with the notes hitting triple par late last week as the underlying equity broke out.

The 0% convertible notes due 2024 were changing hands at 313.5 versus an equity price of $133.96 in the late afternoon, according to a market source.

There was more than $6 million in reported volume during Tuesday’s session.

Pinduoduo priced a $1.125 billion issue of the 2024 notes in 2019 when the company’s equity was $30.99.

Pinduoduo’s ADSs closed Tuesday at $132.37, a decrease of 6.8%.

Guardant Health expands

Guardant Health priced $1 billion of seven-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 34%.

Pricing came at the rich end of revised talk for a yield of 0% to 0.25% and richer than revised talk for an initial conversion premium of 30% to 32.5%, according to a market source.

Revised talk tightened from the initial price talk of a coupon of 0% to 0.5% and an initial conversion premium of 27.5% to 32.5%.

The new paper was in focus in the secondary space with more than $172 million in reported volume heading into the market close.

The 0% notes were trading in a tight range of 100.75 and 101.5 as stock wavered between gains and losses early in the session.

However, the notes climbed to a 102-handle as stock gained as the session progressed.

The notes closed the day with a 1.5 point dollar-neutral expansion, a source said.

Guardant Health’s stock traded to a low of $102.51 and a high of $107.40 before closing the day at $106.48, an increase of 2.05%.

iQIYI tanks

While focus was on the new paper, iQIYI’s 2% convertible notes due 2025 were active with the notes tanking on an outright basis as stock got crushed following earnings.

The 2% notes dropped more than 10 points outright.

They were changing hands just shy of 99 in the late afternoon.

While the notes may have contracted a little on the move down, they were largely moving in line with the company’s equity, a source said.

The 2% notes saw more than $11 million in reported volume.

iQIYI’s ADSs traded to a high of $25.57 and a low of $23.22 before closing the day at $23.71, a decrease of 14.62%.

The Shanghai-based online entertainment company’s equity tanked following its third-quarter earnings report.

While the company beat on both the top and bottom line with revenue of $1.1 billion and a loss per share of 24 cents, iQIYI’s equity sold off following a decline in subscribers and weak forward guidance.

Mentioned in this article:

Guardant Health Inc. Nasdaq: GH

iQIYI Inc. Nasdaq: IQ

Pinduoduo Inc. Nasdaq: PDD

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