Pudong Bank’s Record China Convertible Bond Climbs in Debut
Record China Convertible Bond Begins Trading as Market Cools
(Bloomberg) --
Shanghai Pudong Development Bank Co.’s convertible bonds climbed on their debut, a sign of optimism in a market that’s being walloped by falling equity prices.
The lender, which sold a record 50 billion yuan ($7.1 billion) of the notes last month, saw them rise 3.9% on Friday in Shanghai. The debuted came as a gauge tracking the Chinese convertibles has been heading for its worst week since September. While the sale drew a massive $1.1 trillion in bids -- showing demand remains intense in the primary market -- Pudong Bank’s shares are down nearly 8% since an October peak.
The debut is another important test for China’s fledgling convertible-bond market, which is finally showing signs of life after regulators earlier this year quelled an investor stampede into the higher-yielding securities. Companies have sold more than 230 billion yuan of the equity-like notes as of Thursday, a record and already almost three times as much as last year.
“Pudong Bank has solid fundamentals among commercial banks,” said Zou Kun, an analyst at Northeast Securities Co. He said the securities may rise as much as 5% on the first day. “The note will have good liquidity after trading, given it is the largest in size.”
Caution returned to China’s stock market as trade-war euphoria faded and data showed the economy is weaker than thought. The benchmark Shanghai Composite Index retreated 2.5% this week, the most in nearly two months.
Deals the size of Pudong Bank’s are rare. Bank of Communications Co. had plans for a 60 billion yuan sale and China Minsheng Banking Corp. has been eyeing a 50 billion yuan deal, but both need regulatory approval. A large offering is favorable as it tends to attract more liquidity in the secondary market.
“I am still optimistic about the performance of Pudong Bank’s notes,” said Wu Jinduo, an analyst at Great Wall Securities Co., even though she thought the lender’s stock price may be an overhang. “The market is still lacking new supply, especially for such high-quality convertible bonds.”
To contact Bloomberg News staff for this story: Ken Wang in Beijing at ywang1690@bloomberg.net;Jing Zhao in Beijing at jzhao231@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann
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With assistance from Bloomberg