Still little known outside China, online video-streaming platform iQiyi (Chinese: 爱奇艺) has raised $1.05 billion for its operations by offering six-year convertible bonds.
This is the second-largest deal of this kind by a U.S.-listed Chinese company. It's also iQiyi's second convertible bond offering. The previous one was a $750 million five-year convertible bond taken out in November.
The total size of the deal, however, might reach $1.2 billion because of its over-allotment option for up to $150 million. If exercised, this option will make the deal the largest of its kind by a U.S.-listed Chinese firm
Launched in 2010, iQiyi (which is in the same line of business as Netflix) is today one of the largest online video sites in the world. It has more than 6 billion hours spent on its service each month, and over 500 million monthly active users.
It raised $2.4 billion in its initial public offering on the NASDAQ in March 2018. The company used the proceeds from its IPO to pay off its $750 million convertible bond obligation with a 3.75% coupon in December 2018.
Despite being backed by tech and internet giant Baidu, Inc. iQiyi is struggling mightily against its rivals. Its competition includes ByteDance and Tencent, which have amassed a huge edge over iQiyi in China's booming short-video market.
Massive spending to produce original video content was mostly responsible for iQiyi's net loss of $550 million in the fourth quarter of 2018, a staggering 470 percent jump compared to the loss incurred in the same period in 2017.
CFO Wang Xiaodong said the Q4 loss placed immense pressure on the company, hence the need to secure hefty outside funding such as convertible bonds. The company's problems are reflected in its tanking stock price, which stood at a mere $24.02 on Monday, or about half of its record high of $46.23 in June 2018.
Analysts note that convertible bonds are a cheaper funding source due to their lower coupons that give bondholders the option of converting the debt into shares at a set price in the future. Convertible bonds also give investors fixed returns plus the chance of profiting from a rise in the issuer's share price.
