A well-timed US$675m convertible bond from Chinese computer maker Lenovo Group injected life into Asia’s lacklustre equity-linked market, showing well-structured deals from high-quality issuers could still draw investors’ interest.
Lenovo’s CB was a shot in the arm for the equity-linked market in the Asia-Pacific region which saw only 11 deals in 2022 and had not seen one of over US$100m in the four months before Lenovo’s deal.
The transaction was launched on August 17 during the holiday season: unusual timing for a sizeable deal. It came to market supported by a better-than-expected quarterly profit announced on August 10, but the company also needed to use its issuance quota from China’s National Development and Reform Commission before it expired at the end of August.
Lenovo launched a seven-year put-four US$675m CB concurrently with a tender offer and used the proceeds to repurchase US$455m in principal amount of a US$675m five-year put-two 3.375% CB due 2024.
This allowed the leads to wall-cross existing CB holders for the repurchase and new issue, helping ensure the new CB was covered at launch to de-risk execution in a turbulent market environment.
The old CB, issued in 2019, was in the money with a conversion price of HK$6.60 per share, compared with the August 17 close of HK$6.89, and was quoted at 117.45, compared with the repurchase price of 119.85.
The new CB came with a longer tenor and was marketed at a lower coupon of 2%–2.5% and a higher conversion premium of 40%–50%. It also carried the same number of underlying shares as the existing one to avoid any incremental dilution.
The books were more than twice covered and close to 100 investors participated. The deal was allocated to more than 70 investors and more than 50% went to long-only accounts. Allocation was skewed towards existing CB holders – most chose to roll over and they put in orders that were around 1.5 times their existing positions. The top 10 allocations, mostly long-only investors, received around 60% of the transaction.
The deal was priced at a 2.5% coupon and a 42.5% premium – the highest in Asia since September 2021 – with a conversion price of HK$9.94.
Shares in Lenovo rose 1.45% to HK$6.99 on August 18, the day following the CB sale, and the CB traded around par.
The timing turned out to be optimal, as the Hang Seng share index slumped in the following months.
Goldman Sachs, JP Morgan, BNP Paribas and Citigroup were joint global coordinators and joint dealer managers. Morgan Stanley, Credit Suisse, DBS and HSBC were the other joint global coordinators.
To see the digital version of this report, please click here
To purchase printed copies or a PDF, please email email@example.com