Video-streaming firm iQIYI Inc, backed by search engine giant Baidu, is looking to raise $1.05 billion in convertible bonds in what is likely to be one of the largest ever such sales by a U.S.-listed Chinese company.
The deal is the latest example of the growing popularity of convertible bonds among newly listed Chinese tech companies that are searching for growth capital.
IQIYI announced the sale of its six-year convertible bonds on Tuesday, without disclosing the terms.
A term sheet seen by Reuters showed the bonds were being marketed with an indicative coupon range of 2 percent to 2.5 percent. IQIYI is hoping to lower its borrowing costs compared to its last bond that had a shorter tenor and higher coupon.
The deal also has an over-allotment, or greenshoe, option of up to $150 million, meaning its size could reach $1.2 billion.
Online travel agent Ctrip.com sold a $1.1 billion convertible bond in 2015, the largest ever by a U.S.-listed Chinese company, according to Refinitiv data.
Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving the bondholder the option of converting the debt into company shares at a set price in future. The bonds give investors fixed returns and the equity link provides the prospect of profiting from a rise in the issuer’s share price.
Sales of convertible bonds hit their highest level in Asia since the financial crisis last year, with $35.5 billion raised, according to Refinitiv data, driven by market volatility and rising borrowing costs.
IQIYI was offering a conversion premium of between 27.5 percent and 32.5 percent, according to the term sheet.
Its shares closed at $24.02 on Monday, almost half of their record high of $46.23 hit in June.
It is the second time the Netflix-like streaming service is selling a convertible bond, both within a year of its $2.4 billion Nasdaq initial public offering (IPO) in March 2018.
In November, it sold a $750 million five-year convertible bond with a coupon of 3.75 percent.
Technology companies have increasingly turned to convertible bonds as a way of raising cheaper debt, given the companies are often unrated and have more volatile stock prices.
Electric vehicle maker NIO raised $650 million in a five-year convertible bond earlier this year, only four months after it went public in New York.
Bank of America Merrill Lynch, Goldman Sachs and JPMorgan are joint bookrunners for iQIYI’s deal.
The deal will price after New York markets close on Tuesday.