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Morning Commentary: iQIYI’s $1.05 billion convertibles begin trading, expand on debut
By Abigail W. Adams
Portland, Me., March 27 – iQIYI Inc. was the name of the day in the convertibles space on Wednesday as $1.05 billion in new paper from the Beijing-based online entertainment service provider hit the secondary market.
iQIYI priced $1.05 billion of six-year convertible notes after the market close on Tuesday at par with a coupon of 2% and an initial conversion premium of 32.5%.
Pricing came at the rich end of talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.
The new paper dominated activity in the secondary space and saw a large expansion out of the gate. The notes were expanded 2 points dollar-neutral, a market source said.
They traded to a low of 101.5 and a high of 102.25 early in Wednesday’s session but were largely wrapped around 102 with the company’s American Depositary Shares largely flat.
The majority of trades were done on swap, a market source said.
While iQIYI’s new 2% convertible notes due 2025 dominated activity in the secondary space, the outstanding 3.75% convertible notes due 2023 continued to see active trading.
The 3.75% convertible notes were slightly improved on Wednesday after a 2- to 3-point contraction on Tuesday.
They were better by about 0.25 to 0.375 point dollar-neutral, a market source said.
“The damage was done yesterday,” the source said.
The 3.75% notes were changing hands at 117 early in the session. iQIYI’s ADSs traded at $22.70, a decrease of 0.75%, shortly before 11 a.m. ET.
The ability of iQIYI to tap the market less than six months after pricing the 3.75% convertible notes and price its new offering 175 bps cheaper than its outstanding notes was impressive, a market source said.
The company is in an industry that investors want to be a part of. The pricing is also an indication of the good tone to the market, a source said.
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