China Convertible Bond Market Shows Signs of Roaring to Life

(Bloomberg) --

China’s convertible bond market is on the verge of roaring back to life just months after regulators quelled an investor stampede into the higher-yielding securities.

The country’s stock watchdog is set to review 10 issuance applications on Friday, the most in a single day since at least the start of the year, according to data compiled by Bloomberg. The applicants are seeking to raise 11.8 billion yuan ($1.7 billion). Jiangsu Lugang Culture Co., which was due to seek approval on the same day, withdrew its application late Thursday.

The reviews come after investors snapped up the notes that can be converted into shares as the stock market surged early in 2019. Companies sold 124 billion yuan of convertible bonds in the first quarter, and near the end of the period the China Securities Regulatory Commission took steps to quiet the frenzy. Issuance slid to a combined 39 billion yuan in the next two quarters. A gauge tracking the notes has climbed 19% this year to trade near the highest since 2015.

“Investors are keen for new issuance, given the market has been quiet for quite a while due to lack of new supplies and relatively high prices of outstanding notes,” said Yu Jingwei, an analyst at Citic Securities Co.

The outstanding amount of convertible bonds has shrunk about 9% from the end of the second quarter to Wednesday, according to Bloomberg-compiled data -- a drop that is partly due to buybacks. In September, Ping An Bank Co. bought back all of its notes.

Now, the market is revving back up. On Monday, Shanghai Pudong Development Bank Co. received written approval from the CSRC for a 50 billion yuan offering, which will be the largest on record once completed.

Jinneng Science & Technology Co. said in a filing to the Shanghai exchange late Thursday that it has raised 1.5 billion yuan from a convertible bond offering. The chemical company received written approval for an issuance in June, it said it a separate filing.

“It’s deja vu from the first quarter,” said Wang Junlin, a researcher at Beijing Lerui Asset Management Co. “Investors will actively buy into the new offerings as the secondary market has been trading at a relatively high level thanks to the upbeat view on the stock market.”

©2019 Bloomberg L.P.

With assistance from Bloomberg