Chinese online retailer Vipshop Holdings on March 11 raised US$550 million from its debut offering of convertible bonds that was upsized to meet heavy investor demand.

The deal is likely to spur another wave of CB offerings from US-listed Chinese firms looking to take advantage of the strong buying interest in their equities, bankers say.

“There could be a spate of [Chinese American depositary receipts (ADR) CBs] coming in the next few weeks,” says a CB banker. “When one large transaction gets done, you do see a flurry of other companies with similar features deciding to tap the market.”

The transaction is the third CB offering by US-listed Chinese firms so far this year. Nasdaq-listed Chinese solar power company Canadian Solar in February raised US$130 million from a five-year CB, which was upsized from an initial size of US$100 million. Another solar company JinkoSolar in January raised US$262 million, also from a five-year CB.

In 2013, some US$3 billion is estimated to have been raised by US-listed Chinese internet firms, majority of which came in the final quarter of the year. The low interest rate environment, combined with the soaring stock prices of these firms, have made CBs an attractive venue for these companies to raise funds.

Many of them have been in a growth mode for some time, and have relatively shorter track record in the market, so tapping the CB investor base makes sense for them, notes the banker. This is particularly true for US-listed companies because for US CB investors, the credit aspects of convertible bonds tend to be less important than equity aspects, he adds.

Vipshop CB too was timed to take advantage of the strong momentum the stock has been enjoying in the past few months, surging to an all-time high. The stock price has soared 22x since the company listed in March 2012 when it raised US$73 million from an IPO that was priced at US$6.50 per ADR. At the time the CB was priced on March 11 2014, the stock was trading at US$143.74 per ADR.

The company specializes in discounted branded goods, and has been growing rapidly in a market that has few competition. In February 2014, it acquired a 75% equity interest worth US$132.5 million in Lefeng.com, which operates an online retail business specializing in the sale of cosmetics and fashion products in China.

Strong Asian demand
The deal was launched after the US market closed on March 10, enabling the bookrunners to market the deal first in Asia and Europe, before the US. “As a consequence, the transaction got more demand from Asia and Europe than these deals typically do,” says a banker close to the deal. “By the time the US market opened the next day, the transaction already had a fair bit of momentum with a number of very large orders and quite strong aggregated demand to start with.”

US investors dominated in the final allocation as usually the case for US-listed companies, but Asian and European investors too had larger-than-usual demand with three of the top five orders coming from those two regions, says the banker.

The transaction ended up being multiple times oversubscribed, and was upsized to US$550 million from an initial US$400 million, while the greenshoe was also increased to US$82.5 million from the original US$60 million.

The CB, which has a five-put-three structure, was priced at an initial conversion price of US$201.24 per ADS, which represents a conversion premium of 40%. The notes carry a coupon of 1.5%. The marketing range for the coupon was between 1.25%-1.75%, while the range for conversion premium was between 37.5%-42.5%.

The notes were marketed with credit assumption of 550bp-650bp, while stock borrow was available for the entire transaction at 200bp. The historical volatility was about 50% when the deal was launched. At the final pricing, the bond floor comes out to be 84% with implied volatility of 40%.

Deutsche Bank and Goldman Sachs were the joint bookrunners, while Bank of America Merrill Lynch and China Renaissance Securities acted as the co-managers on the deal.