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Monday, 24 November 2014

Ctrip returns with blockbuster CB

STRUCTURED EQUITY: Chinese travel website snares aggressive terms on return to market

Ctrip returns with blockbuster CB

US-listed Chinese travel booking website Ctrip.com International increased the size of its offering of a new convertible bond to at least US$700m last week, capitalising on resurgent demand for PRC stocks to price at aggressive terms.

Already tying Hengan International’s deal as the largest CB offering from an Asian issuer this year, the greenshoe of US$100m could make it the biggest.

The five-year CB had launched at a base size of US$500m with a greenshoe of US$75m, before strong demand allowed a far larger increase.

The conversion premium was set at 42.5% and the coupon at 1.25%. Both came at the aggressive ends of the 37.5%–42.5% and 1.25%–1.75% guidance.

The premium is the highest from an issuer from Asia ex-Japan this year, and the highest for a Chinese issuer since 2007. Ctrip’s shares have already risen 144% year to date.

Ctrip has also purchased a call spread, which raises the effective conversion premium to a much higher level, although the terms were not disclosed. It did the same thing in its debut CB in September last year to limit dilution.

Given that CB offerings in the US tend to pay better fees than those from most of Asia, and that the deal came with a call-spread overlay, this is likely to be the most lucrative from an Asian issuer this year. It is also the largest sole-bookrun deal, with only JP Morgan on the ticket.

Just over a year ago, the same issuer printed a US$180m CB. That deal, too, had been increased from the size indicated at launch. It priced at a 0.5% coupon and 10% premium. Although the company’s management bought US$55m of last year’s deal, it did not participate in this one.

Last year’s CB funded a stock buyback and was successful in boosting the share price. The stock had closed at US$17.58 before that deal launched, and jumped 5.6% after that.

It has performed even better since, hitting a high of US$61.09 on October 2 this year as Chinese tech stocks have regained favour with American investors. Ctrip has not undergone any major transformation since then, but executed its mobile strategy successfully and made big gains in market share in the first half of this year.

The new bond had yet to trade at time of writing, but was seen at 101/102 in the grey market. Proceeds will be used for general corporate purposes, including working capital, potential acquisitions and possible repurchases of its ADS.

The notes have a tenor of five years and an investor put at par at the end of the third year.

More than 150 accounts participated in the deal. The credit spread assumption was 400bp, stock borrow cost was 50bp, implied volatility was 29% and the bond floor was 90.2. There was 0% dividend protection.

Last Tuesday, Deutsche Bank and Morgan Stanley also completed a US$150m five-year put-three CB for mobile security company NQ Mobile. The CB was priced at 4% with a conversion premium of 30%, versus guidance of 3.5%–4.0% and 25%–30%.

It was the first CB from a US-listed Chinese company since 2010 without a stock borrow facility, said a banker on the transaction. As a result, demand and allocation was skewed heavily towards outright investors.

Additional reporting by Fiona Lau.

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