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China video-streaming company iQIYI objectives the increase of $1.1 billion in convertible bonds

HONG KONG (Reuters) – the Chinese video-streaming service iQIYI Inc is looking to raise $1.05 billion in convertible bonds, the most recent example of the growing popularity of the instrument among the new Chinese tech companies.

The logo for the Chinese streaming platform iQiyi Inc., is shown on a screen during the company’s initial public offering (IPO) at the Nasdaq Market Site in New York City, USA, March 29, 2018. REUTERS/Brendan McDermid

iQIYI announced the sale of its six-year convertible bonds on Tuesday, without knowing the conditions.

A term sheet seen by Reuters showed the bonds were being marketed with an indicative coupon range of between 2 percent and 2.5 percent. The company hopes to provide a reduction in the cost of borrowing compared to its recent convertible bond, which has a shorter maturity and a higher coupon.

The deal also has an over-allotment, or greenshoe option, up to $150 million, which means that the total size can be up to $1.2 billion.

Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving the bondholder the option of converting debt into shares of the company at a certain price in the future. The bonds give investors fixed income and the equity link offers the prospect to benefit from an increase of the issuer’s share price.

The sale of the convertible bonds hitting their highest level in Asia since the financial crisis last year, with € 35.5 billion raised, according to Refinitiv data, driven by the volatility of the market and rising borrowing costs.

iQIYI was the offering of a conversion premium of between 27.5 percent and 32.5 percent, according to the term sheet.

The shares closed at $24.02 on Monday, nearly half of the record high of $46.23 hit in June.

It is the second time that the Netflix-like streaming service is the sale of a convertible bond, both within a year of its $2.4 billion Nasdaq initial public offering (IPO) in March 2018. In November sold for an amount of $750 million of five-year convertible bonds with a coupon of 3.75 per cent.

Technology companies looking for growth capital increasingly turned to convertible bonds as a way to cheap debt, given the companies are often not classified and more volatile stock prices.

Electric car maker NIO raised $650 million in a period of five year convertible bond earlier this year, just four months after it went public in New York.

Bank of America Merrill Lynch, Goldman Sachs and JPMorgan are joint bookrunners for iQIYI the deal.

The deal will be the price after New York markets close on Tuesday.

Reporting by Julia Fioretti; Editing by Muralikumar Anantharaman

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