Chinese travel agent Ctrip.com International raised $1.1 billion from a dual tranche convertible bond on Friday, with strong demand allowing the issuer to boost the deal size.
The first tranche, which had a five-year maturity and a three-year put option, had over 150 lines in the book, a combination of outrights and hedge funds. The outright investors — long only institutional investors — were primarily from the US and Europe, while the hedge funds came from Asia, Europe and the US. Ctrip raised $700 million from this note.
The second tranche — a 10-year tenor with a put option at the end of five years — had over 100 lines in the book, a similar mix of outrights and hedge funds, according to a source close to the deal. The issuer secured $400 million from this convertible, which is due in 2025.
The five-year bond closed with a conversion premium of 45%, towards the middle of the indicative range of 42.5% to 47.5%. The 10-year note meanwhile closed with a conversion premium of 42.5%, at the bottom of its range, which was also 42.5% to 47.5%.
A source close to the deal noted the five-year tranche had less price sensitivity than the 10-year tranche. “People like the five-year. The 10-year is more long-term money. Not a lot of issuers do 10-year CBs. So they have a bit of a novelty factor,” the source close to the deal told FinanceAsia. “It’s one of the few companies [in Asia] which has been able to do a 10-year tranche.”
For the first tranche, underlying assumptions comprise a bond floor of 88% and implied volatility of 33%. This is based on a credit spread of 400 basis points and stock-borrow costs of 0.5%.
The second tranche meanwhile had a bond floor of 82% and implied volatility of 29%. This is based on a credit spread of 450 basis points and stock-borrow costs of 0.5%.
There was no stock slippage, giving the deal was marketed while the stock was still trading, the source said, noting that the stock actually rose half a percent.
“[Ctrip] also purchased a call spread, which is designed to increase the conversion premium above and beyond what the CB can offer,” said the source, noting that this is a very common structure in the US.
Proceeds raised from the convertible bond will allow the company to purchase some of its own stock and pay for the call spread. Ctrip will also use it for general corporate purposes, which include potential acquisitions.
JP Morgan was the sole bookrunner.
The bonds will be convertible into Ctrip’s American depository receipts, each representing 0.25 of an ordinary share of Ctrip.
Ctrip will not have the right to redeem the notes prior to maturity. Holders of the notes can require the company to repurchase all or part of the 2020 notes on July 1, 2018, and all or part of the 2025 notes on July 1, 2020.
On May 8, Ctrip, which provides accommodation reservations, transportation ticketing, packaged tours, corporate travel management and other travel-related services in China, made an unsolicited offer to acquire all of the outstanding shares of Qunar, another Chinese travel site. Qunar declined to pursue the deal, although in a recent earnings statement said it “remains open to engaging in further discussions with Ctrip as well as with other strategic players.”
Ctrip’s strong performance this year — the stock jumped 64.9% year-to-date up to Thursday’s close of $75.01 per share — helped contribute to strong demand for the Nasdaq-listed company.
The last time it issued a convertible was nearly two years ago, when it raised $800 million via a convertible bond in October 2013.
