Chinese convertibles drop in line with shares on delisting fears; Pinduoduo, YY lower

By Rebecca Melvin

New York, Sept. 27 – The convertibles of Chinese companies with American Depositary Shares dropped on Friday after news that the Trump Administration is considering the possibility of delisting these companies from U.S. stock exchanges.

The news sent shockwaves through the financial markets as such a move would escalate tensions between the United States and China.

“That is the story du jour,” a New York-based market source said of the delisting suggestion. “It sent the underlying ADRs lower and the bonds were also lower dollar neutral across the board. It is definitely a surprise for the convert market and would have far-reaching repercussions and cause a lot of pain in the broad market.”

As of February, there were 156 Chinese companies listed on the Nasdaq and the New York Stock Exchanges, including at least 11 state-owned companies, according to a report by Bloomberg, which broke the story.

Pinduoduo Inc.’s $875 million deal of 0% five-year convertible notes, which priced earlier this week and had been trading actively well above par, fell 4.5 points to just under 99, according to Trace data. Shares of the Chinese-based e-commerce platform dropped sharply after the news broke at about midday and closed down $1.37, or 4%, to $31.28.

YY Inc.’s 1.375% convertibles due 2026 shed 3.3 points to 90.5 with the underlying shares falling $3.94, or nearly 7%, to $55.25.

Momo Inc.’s 1.25% convertibles due 2025 fell 4.3 points to 89 with a 6% underlying stock drop to $31.22.

Ctrip.com International Ltd.’s 1% convertibles due 2020 and 1.99% convertibles due 2025 traded at 97.8 and 101.4, respectively. Ctrip.com ADSs extended losses, closing down 2.7% to $29.02, after dropping 7.3% on Thursday.

Other convertible issuers Baozun Inc. and Qudian Inc. were also in focus, although pricing on those notes was not heard. The Baozun shares fell $1.25, or 3% to $42.48 and the Qudian shares fell 1.6% to $6.80.

The moves came on the heels of a quiet morning in which convertibles were little changed on light volume as a somewhat weaker tone persists in the wake of a flood of issuance over the past month.

Total volume was light at late morning with about $100 million of bonds seen to have traded, according to Trace data, a New York-based market source noted.

The leading mandatory convertible in trade was Broadcom Inc.’s $3.25 billion of 8% mandatory convertible preferred shares, which also priced this past week, and NextEra Energy Partners LP’s $1.5 billion of 4.872% mandatories that priced earlier in September was also active.

Broadcom’s preferred was quoted at 104.5 bid, 104.5 offered with the common stock at $280.50.

“I think the deal did very, very well, with the underwriters placing about two-thirds of it with outrights,” the source said regarding Broadcom.

New issues persist in dominating secondary market trading, the market source said.

There has been more than $10 billion in new U.S. convertibles issuance for September so far in 21 deals, which is more than double September 2018 when $5.3 billion priced in eight deals, according to Prospect News’ data.

Issuance for the year so far is also now above the same period last year, with total issuance standing at $46.48 billion in 106 deals, compared to $45.08 billion for the same period of 2018, according to Prospect News’ data.

High-yield debt is also tracking ahead of last year with investment-grade issuance about even with last year, a market source said.

Looking ahead, market players will be watching index rebalancing next week that marks month end and the start of earnings season in mid-October. That will likely be the next big catalyst, the source said.

Mentioned in this article:

Baozun Inc. Nasdaq: BZUN

Broadcom Inc. Nasdaq: AVGO

Ctrip.com International Ltd. Nasdaq: CTRP

Momo Inc. Nasdaq: MOMO

NextEra Energy Partners LP NYSE: NEE

PInduoduo Inc. Nasdaq: PDD

Qudian Inc. NYSE: QD

YY Inc. Nasdaq: YY

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