Morning Commentary: Bilibili’s new convertibles dominate secondary, expand on debut

By Abigail W. Adams

Portland, Me., April 3 – Wednesday opened with $430 million in new paper entering the secondary space.

Bilibili Inc. priced an upsized $430 million of seven-year convertible notes prior to the market open on Wednesday at par with a coupon of 1.375% and an initial conversion premium of 37.5%, according to a company news release.

Pricing came at the rich end of talk for a coupon of 1.375% to 1.875% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The greenshoe was also upsized to $70 million. The initial size of the deal was $300 million with a greenshoe of $45 million.

Concurrent with the convertible notes offering, the company priced an upsized offering of 11,473,813 American Depositary Shares and certain shareholders priced an additional 6,526,487 ADSs at $18.

The ADS offering carries an upsized greenshoe of 2,700,000 shares.

The initial size of the company’s ADS offering was 10,554,000 shares with a greenshoe of 2,526,028 shares.

The new paper dominated activity in the secondary space and was trading up out of the gate. It was seen changing hands at 102 versus an equity price of $18.43.

The notes were expanded about 1 point dollar-neutral, a market source said.

More than $36 million of the bonds were on the tape less than one hour into Wednesday’s session.

Sources were surprised at the performance of the notes.

While the deal modeled cheap based on underwriters’ assumptions of a credit spread of 500 basis points over Libor, it looked rich with a wider credit spread, which some felt the Shanghai-based online entertainment company deserved.

However, the deal was both a Rule 144A and Regulation S offering which increased its audience and demand.

While focus centered on Bilibili’s new 1.375% convertible notes, competitor iQIYI Inc.’s 2% convertible notes due 2025 remained major volume movers.

The notes from the Beijing-based online entertainment service provider were changing hands at 106.625 with more than $21 million of the bonds on the tape about one hour into Wednesday’s session.

iQIYI’s share price was $24.43, an increase of 0.12%, shortly before 11 a.m. ET.

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