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US-listed Chinese companies are on a financing tear

Key Points
  • In the roughly first nine months of the year, companies have announced nearly $7.2 billion in public offerings of fixed income and private placements, typically of convertible debt.
  • That outpaced $5.6 billion raised in the first three quarters of 2018.
  • The trend is an indication of the companies' need for financing, and of the market's growing confidence in the businesses, analysts said.
The New York Stock Exchange welcomes NIO in celebration of their IPO.
Photo: NYSE

BEIJING — Chinese companies listed in New York are increasingly tapping convertible bonds and other financial mechanisms to quickly raise capital.

It's an indication of the companies' need for financing, and of the market's growing confidence in the businesses, analysts said.

Shenzhen-based LexinFintech announced Wednesday it entered into an agreement with Asian private equity giant PAG for the sale of $300 million of seven-year convertible notes, which can be exchanged for stock at $14 a share as early as six months after issuance.

Convertible bonds are debt that can be converted into a specified number of shares, while offering the benefits of a bond, such as interest payments.

LexinFintech, which operates an installment purchase e-commerce site and a consumer loan platform, closed more than 5% higher Thursday at $11.79 a share.

The news follows a Sept. 5 announcement from Chinese electric car company Nio that it entered into an agreement for the issuance of $200 in convertible notes — split between an affiliate of tech giant Tencent and Nio's Chairman and CEO William Li. In January, Nio had already issued $650 million in convertible notes.

Video-streaming sites iQiyi, Bilibili and YY are just some of the other U.S.-listed Chinese companies that have entered into similar financing agreements this year.

In the roughly first nine months of the year, Chinese companies have announced nearly $7.2 billion in public offerings of fixed income and private placements, typically of convertible debt, according to CNBC analysis of data from S&P Global Market Intelligence. That outpaced $5.6 billion raised in the first three quarters of 2018, and is close to last year's total of $7.8 billion, the data showed.

"Right now the market for investing in start-ups isn't that good. Instead, investors will like more developed and mature companies like Lexin as investment targets," said Wen Shijun, a financial analyst formerly with Cinda Securities, according to a CNBC translation of his Chinese comments.

Wen also pointed out that for companies that have already gone public, using financing methods such as issuing convertible notes is faster relative to alternatives.

In a low interest rate environment, companies can also get financing at attractive rates. The Lexin and Nio deals in September both had rates of 2%.

Johnny Jiang, a former employee at boutique investment firm FT Global Capital who was involved with Chinese listings in New York, said in a phone interview that in the past, only the most established companies such as search engine giant Baidu could issue convertible notes.

Now, even companies that have only launched within a few years have shown they are mature enough to have the collateral to issue the notes, Jiang said, according to a CNBC translation of his Mandarin-language remarks.

PAG had no further comment to CNBC about the agreement with LexinFintech.

But the private equity firm's chairman and CEO, Weijian Shan, said in a release: "Lexin has an unparalleled platform for meeting young consumers' credit needs while strictly controlling and minimizing credit risks, which makes it unique, and we are looking forward to supporting the company as it embarks on its next stage of growth."