(Yicai Global) Sept. 25 -- Pinduoduo, China's third-biggest e-commerce player, is the first foreign-listed Chinese tech firm in 15 years to set a zero percent interest rate on convertible bonds, according to Tencent News.
The Groupon-like e-commerce platform has sold USD875 million of the equity-linked notes, the report said, citing a company statement. It had eyed a rate of between zero and 0.25 percent, but due to over-subscription pegged it at the lower end, a source close to the issuing bank told Tencent News.
The Shanghai-based startup's move to raise funds through convertible bonds, which can be swapped for stock and are becoming a much-favored financing tool among Asia's tech companies, comes 14 months after securing USD1.6 billion in an initial public offering in New York and seven months after filing to raise a further USD1.5 billion in a secondary share sale.
The rate on the convertible bonds is lower than that for regular bonds because investors are willing to accept it in return for future conversion premiums. Pinduoduo may raise USD1 billion if initial subscribers sign up for an additional USD125 million within 13 days.
The conversion premium on the bills was set at 37.5 percent. The corresponding initial conversion price was USD42.61, based on the company's [NASDAQ:PDD] closing price of USD30.99 yesterday. The initial conversion ratio is 23.4680 American Depositary Shares for every USD1,000 of the principal.
Pinduoduo's shares fell 8.4 percent yesterday to close at USD30.99 each. The stock has fallen 16 percent since climbing to a 52-week high of USD36.89 earlier this month.
The cash raised will go toward research and development and new agriculture-related infrastructure as Pinduoduo looks to ramp up investment in farm technology and product systems and add 1,000 more farms in the next five years, according to a Securities Times report yesterday.
Pinduoduo has the right to redeem the notes from Oct. 1, provided that on at least 20 trading days in the 30 prior to it exercising this option, including the day immediately before, the firm's stock price is at least 130 percent of the effective conversion price, according to an earlier statement from the company.
This means the firm can force buy-back of the notes at the original price when the stock price stays above USD55.39 and bondholders are unwilling to sell the notes at the original price, as this will fix an upper limit for the final conversion price.
Editor: Ben Armour