After successfully raising $6.5 billion, Alibaba Group Holding Ltd and JD.com Inc. through the sale of convertible bonds, other Chinese technology companies are showing a growing interest in this financial instrument. Convertible bonds allow companies to raise funds at a lower cost than conventional debt, especially in a high interest rate environment, and use them for share buybacks, investments and other strategic purposes.
Analysts Bloomberg Intelligence and UOB Kay Hian note that this trend is gaining momentum amid the recovery of the Chinese stock market after Beijing’s crackdown in 2021 and rising return on capital of technology companies. Share buybacks through convertible bonds are seen as an effective way to increase shareholder returns and increase company value.
Among the potential candidates for issuing convertible bonds are such companies as Baidu Inc., Meituan, Tencent Holdings Ltd., NetEase Inc. and PDD Holdings Inc. These companies have a high ratio of net cash to market capitalization, which makes them attractive to investors, and are actively considering share buyback opportunities.
“Increasing return on equity is the trend for undervalued Chinese tech companies this year, and share buybacks are a better way to go than dividends.”, – noted Wei-Sern Ling, director of Union Bancaire Privee.
Experts expect other companies with share buyback and dividend plans to also turn to the bond market to boost shareholder returns and strengthen their market positions.
