Largest China Convertible Bond Draws $1.1 Trillion in Bids

(Bloomberg) -- Investors seized the chance to take part in China’s largest convertible bond sale, showing just how coveted the equity-like securities have become.

Shanghai Pudong Development Bank Co.’s 50 billion yuan ($7.1 billion) deal was about 330 times oversubscribed, according to a Shanghai stock exchange filing late Monday. With about half of the offering first allocated to existing shareholders, that means new investors placed 7.8 trillion yuan worth of orders for the remaining supply. For context, that money could buy Brazil’s entire equity market with some change to spare.

“It will be one of the most liquid convertible bonds around when trading starts,” said Alexander Yao, general manager at Roadshow Investment Co. “That makes it a good addition to the market.”

The deal comes after China’s securities regulator limited subscriptions for such offerings to one account per investor in late March, in an attempt to cool the frenzy. Before the restrictions, an offering from Citic Bank Corp. saw orders outstrip supply by 5,500 times. Pudong Bank’s convertible deal tops the 40 billion yuan sold by Bank of China Ltd. in June 2010 and matched by Citic Bank in March.

Convertible bond offerings in China are usually hundreds or even thousands of times oversubscribed by investors given the limited supply compared to other types of securities, such as corporate bonds or stocks. A similar phenomenon is seen in the country’s initial public offerings. Investors don’t have to pay the full amount of their bids until after they get their allocation.

Placing a successful deal of this size is a bullish sign for the market after months of quiet. Pudong Bank’s convertible bonds may rise as much as 8% on their trading debut, Sinolink Securities Co. analysts wrote in a note last week, noting its high credit rating.

--With assistance from Qingqi She.

To contact Bloomberg News staff for this story: Ken Wang in Beijing at ywang1690@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann

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