More Chinese companies exploring convertible bonds

The overseas financing environment is expected to be more favorable for Chinese companies in 2014 compared with 2013, as the US and European stock markets adopt a bullish outlook amid a relatively lower benchmark dollar interest rate, a senior JPMorgan manager in China said on Tuesday.

Convertible bonds will be an attractive financing instrument for Chinese entrepreneurs who plan to raise funds overseas, said Brian Gu, managing director and vice-chairman of China Investment Banking at JPMorgan.

As an innovative financial product, the convertible bond has the features of both the general bond and the stock call option, which means investors can choose when to convert the bond into a fixed amount of shares before its expiration date.

Convertible bonds are a customized financial product that are more flexible for both issuers and investors. They also have a lower financing cost and shorter preparation period for issuance than other financing tools, so a growing number of Chinese companies are choosing them, Gu said.

According to data provided by financial services platform Dealogic, in 2013, Chinese companies issued $6 billion in convertible bonds in overseas markets last year, an increase from $1.19 billion last year and $2.07 billion in 2011. During the first week in 2014, about $1.7 billion worth of convertible bonds were issued in the Asia market (except Japan).

Funds raised by financing tools other than the convertible bond in overseas markets are expected to increase in 2014, especially in light of the present tight liquidity domestically, analysts said.

The amounts raised by Chinese companies in Hong Kong and US equity markets rebounded to their highest level in 2013 after a two-year drop, suggesting a slow recovery in investors' confidence following the global financial crisis, according to Dealogic.

Last year, Chinese companies raised $16.1 billion by issuing IPOs in Hong Kong, up from $6.78 billion in 2012 and $10.69 billion in 2011. Total funds raised from the US IPO market rose to $907 million in 2013, compared with $166 million in 2012 and $2.15 billion in 2011.

In 2013, $49.7 billion in general bonds were issued by Chinese companies from overseas, compared with $29.7 billion in 2012 and $25.9 billion in 2011.