Morning Commentary: VNET active as put nears; crypto names rally on ETF expectations

By Abigail W. Adams

Portland, Me., Oct. 24 – While the convertibles primary market remained dormant on Tuesday, the secondary space saw an uptick of activity as markets continued to rebound from recent heaviness.

Equity indexes saw a strong start to the day after a better-than-expected Purchasing Managers’ Index pointed to continued business strength, raising expectations for key earnings reports ahead.

The Dow Jones industrial average was up 271 points, or 0.82%, the S&P 500 index was up 0.80%, the Nasdaq Composite index was up 0.92% and the Russell 2000 index was up 1.36% shortly before 11 a.m. ET.

There was $85 million in reported convertibles trading volume about one hour into the session with topical news sparking movement in the space.

VNET Group, Inc.’s (formerly 21Vianet Group Inc.) 0% convertible notes due 2026 were active as the put date approaches.

While the notes were trading with a yield that implied deep skepticism about the Beijing-based internet data center services provider’s ability to honor the put, the company recently received approval to raise its share capital.

Crypto names were also rallying alongside Bitcoin, which surged Tuesday with the market expecting imminent Securities and Exchange Commission approval of Bitcoin ETFs.

Coinbase Global, Inc.’s 0.5% convertible notes due 2026 and MicroStrategy Inc.’s 0% convertible notes due 2027 were higher on the news.

VNET’s put

VNET’s 0% convertible notes due 2026 were unchanged in active trade on Tuesday as the company’s put date approaches.

The 0% convertible notes were wrapped around 73.5 with a yield to put of 136.625% in heavy volume early in the session.

There was $10 million in reported volume.

The notes become putable on Feb. 1, 2024.

The convertibles were trading with heavy skepticism about the Beijing-based data-center’s ability to honor the put, a source said.

The company currently has $345 million in cash on its balance sheet.

It is carrying $1.549 billion in debt, $600 million of which is the 0% convertible notes, a source said.

However, the company received shareholder approval to increase its share capital at an extraordinary general meeting on Oct. 5, according to a company press release.

The authorization enabled the creation of an additional 1.5 billion class A ordinary shares.

VNET’s American Depositary Shares popped on Tuesday with the ADRs changing hands at $3, an increase of 9.31%, shortly before 11 a.m. ET.

Crypto fever

Crypto names were in focus on Tuesday as Bitcoin surged with the market expecting imminent SEC approval of Bitcoin ETFs.

Coinbase’s 0.5% convertible notes due 2026 made large gains as stock surged on the heightened expectations.

The 0.5% convertible notes jumped 1.25 points outright.

They were trading at 77.5 versus a stock price of $83.25 early in the session, according to a market source.

The yield was 10.625%.

There was $7 million in reported volume.

Coinbase’s stock was trading at $87.70, an increase of 13.58%, shortly before 11 a.m. ET.

MicroStrategy’s 0% convertible notes due 2027 gained 2 points outright.

They were trading just shy of 74 versus a stock price of $410.95 early in the session.

There was $2 million in reported volume.

MicroStrategy’s stock was trading at $431.02, an increase of 14.02%, shortly before 11 a.m. ET.

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