(Bloomberg) -- When one door closes, another one sometimes opens. For bankers in Hong Kong, where big mergers and acquisitions and initial public offerings have largely stalled, convertible bond issues are very much in vogue.

Major players — Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley and UBS Group AG — have been busy helping a trio of Chinese tech heavyweights raise a combined $9 billion through convertible bond sales, bringing in some much-needed fees. 

JD.com Inc. kicked things off with a $2 billion offering last week, a figure matched by Lenovo Group Ltd., which just announced it would sell zero-coupon convertible bonds to a unit of Saudi Arabia’s sovereign wealth fund. Step aside for Alibaba Group Holding Ltd., which broke records with a $5 billion issue too.

Bankers expect the rush to continue and extend through the Asia Pacific region.

Encouraging Times

“The resurgence in convertible bond sales is encouraging for bankers after a slow 2023,” said Avinash Thakur, head of APAC capital markets financing at Barclays in Hong Kong. “While the fee wallet for convertibles may not be as big as for IPOs, it definitely helps.”

“It’s encouraging,” he said, noting that convertible bonds enable companies to use a different source of financing while driving down interest costs. “We’re poised to see more capital markets activity over the coming months.”

Convertible bonds are particularly attractive when the primary equity market is challenging, according to Jonathan Stone, a partner at law firm Skadden, Arps, Slate, Meagher & Flom in Hong Kong. They allow companies to raise money at a premium to the current share price and at a lower coupon than traditional debt, and they’re also less dilutive for shareholders than equity issuances, he said. 

Potential Launchpad

The increase in activity could help jump start dealmaking more broadly, said Stone, who focuses on M&A and capital markets in the APAC region. 

“Convertibles and other equity linked products often serve as a launchpad for equity deals,” he said. “There’s pent up demand from companies to pursue IPOs and follow-on offerings, but there remains a question mark on when those deals will be able to be successfully marketed.”

On top of a weak IPO market, M&A volume for companies in APAC this year is about 17% lower than the same stretch in 2023, whereas in Europe and the US it has soared 48% and 38%, respectively, data compiled by Bloomberg show.

While IPOs and M&A in Asia are subdued, not least because China action is limited, there are some signs of activity, and more private equity-led business is likely given their lineups and finite investment periods, Stone said.

That brighter outlook is shared by others. 

“The pipeline across strategic mergers and acquisitions and financing is the fullest it has been for several quarters, and if markets remain stable, expect more headlines,” said Jan Metzger, Citi’s investment banking head for Asia.

(Updates with UBS’s role in second paragraph.)

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