E-House Joins Fund Raising With $180 Mln Bond
It seems China’s second largest online real estate services firm E-House (NYSE: EJ) is suffering from a case of envy over sector leader SouFun (NYSE: SFUN), and is now following its larger rival with plans for a major new convertible bond offering. The offering marks the latest in a steady stream by some of China’s biggest US-listed tech firms, which are discovering strong investor appetite for their debt that can be converted later into company stock. While a recent string of New York IPOs by Chinese firms have attracted more media attention lately, this ongoing series of bonds has actually raised far more money for some of China’s biggest tech firms.
The recent series of convertible bonds has also become a healthy tonic for shares of companies issuing the debt, with such stocks typically posting big jumps after new announcements. That’s certainly the case this time, with E-House’s American Depositary Shares (ADSs) jumping 11 percent after it announced its plan to sell up to $180 million in convertible 5-year notes. (company announcement) The notes initially will be purchased by Credit Suisse, which will have the option to purchase up to another $20 million worth if demand from secondary buyers is strong. Terms, including the conversion price of the bonds, have yet to be set.
E-House’s proposed debt offering comes less than a week after SouFun sold $350 million worth of convertible notes, whose final conversion price was set at a 40 percent premium to its last closing price before the issue. (company announcement) SouFun had originally proposed offering $250 million worth of notes, but ultimately raised the amount by a hefty 40 percent after getting strong demand.
Other companies to issue new notes in the last few months include leading web portal Sina (Nasdaq: SINA), which raised $700 million; security software maker NQ Mobile (NYSE: NQ), which raised $172 million; leading online travel agent Ctrip, which raised $700 million; and software security specialist Qihoo 360 (NYSE: QIHU), which raised $600 million. Those offerings followed earlier ones by leading web portal Baidu (Nasdaq: BIDU) and top social networking (SNS) operator Tencent (HKEx: 700), which raised $1.5 billion and $600 million, respectively. Some quick math will show that these companies have collectively raised nearly $5 billion in new funds through such bond offerings over the last year.
In nearly all the recent cases, the companies ultimately raised more money than the figure from their initial announcement, reflecting strong demand for their notes. Thus I wouldn’t be surprised to see E-House experience similar strong demand and end up raising around $250 million when the bond placement is complete.
This quieter round of fund raising reflects a new type of investor sentiment that has evolved over the last year, following a series of accounting scandals at several overseas-listed Chinese firms dating back to 2011. Sentiment towards all of these firms entered a deep freeze for most of 2011 and 2012, but has been slowly thawing this year. But whereas investors welcomed almost any Chinese start-up before, they are becoming quite selective about their preferences.
This new round of bond offers shows that investors like Chinese tech firms that are either the largest or second largest in their class, which is the case with nearly all the companies that have issued debt in this recent wave. These companies are low-risk for repaying the debt, and offer big potential upside if their stocks rise sharply over the term of the bonds. We may see one or two more bond offerings in the next week, as such deals are typically much easier and faster to do than IPOs that take months of preparation. At the end of the day, I do agree that these offerings look like good bets for investors, who could pocket some nice gains if shares of these industry leaders continue posting healthy gains over the next few years.
Bottom line: E-House is likely to raise the size of its proposed bond offering to around $250 million, and we could see 1 or 2 more similar offerings in the next week before the Christmas holiday.
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