Issuing Convertible Preferred Notes, Is Alibaba following JD?

JD issued convertible bonds, and Alibaba is also likely to follow suit. Who might be next?

On Wednesday, Alibaba's Hong Kong stocks fell by more than 5%. According to informed sources, Alibaba is considering issuing convertible bonds to raise approximately $5 billion.

Previously, on May 21st, JD announced plans to issue convertible bonds with a total size of $1.75 billion. JD's Hong Kong stocks have fallen for three consecutive days and dropped by over 4% today.

JD stated that the issuance of convertible bonds this time will allow it to accelerate the stock repurchase process at the current stock price using low financing costs (0.25% coupon rate). The conversion price is 45.7%, with a market premium of approximately 35%.

In response, HSBC stated:

It is not surprising that internet companies are using the bond market to enhance shareholder returns. In the current high-interest-rate environment, convertible bonds provide a better financing option compared to regular bonds.

The decline in JD's stock price is also not surprising. Historically, after internet companies issue convertible bonds, the stock price often experiences a short-term decline. Over the past three years, the average stock price has fallen by 8% on the first day after the announcement, and by 23% by the 30th day.

Who is likely to follow suit? HSBC believes:

Preferring Meituan, Tencent, NetEase, and Pinduoduo, we estimate that Meituan and Tencent are the most likely companies to issue convertible bonds, while NetEase may maintain a more defensive stance.

When analyzing who might follow suit, investors should pay attention to four key indicators: 1) Stock performance: Bilibili, JD, and Tencent Music have performed the best in the past month; 2) Offshore liquidity: Tencent, iQIYI, Bilibili, Baidu, and Meituan have net dollar debt; 3) Shareholder returns and cash position: Tencent's stock buybacks and dividends are expected to account for 140% or more of net cash position this year, followed by JD at 42%, and Weibo at 35%; 4) Historical convertible bond issuances: iQIYI has issued four times in the past five years, Bilibili three times, and Pinduoduo twice