Bonds convertible at a 13% premium carry most of CIG Shanghai's $840 million raise

Work back from the two prices and both halves of the deal sit either side of the same number. A placement at HK$105.16, 8% below the last close, implies a Wednesday close of about HK$114.3. A conversion price of HK$128.82 at a 13% premium implies about HK$114.0 ^[14]. So CIG is selling the same H share at two prices roughly 22.5% apart ^[15]. The higher price carries about 70% of the money ^[16].

If every bond converts, the HK$4.635 billion becomes about 36 million shares ^[17]. Add the 18.4 million placement shares ^[8] and CIG will have issued roughly 54 million new H shares at an average of about HK$121 ^[18], some 6% above the pre-deal close ^[19]. Raising the same HK$6.6 billion entirely at the placement price would have taken about 62.5 million shares ^[25].

All of that depends on the stock. Should the H shares clear HK$128.82 before maturity, holders convert and CIG never hands back cash. If the stock stalls below that price, the 3.96 billion yuan of principal ^[6] falls due in 2027, at most about 15 months after Thursday's announcement ^[22]. By then the money is meant to be sitting in new photonics production lines ^[9]. A fall below HK$105.16 would put the placement buyers under water and leave the bonds as, in effect, a short-dated loan. After Thursday's gain the H shares sat near HK$117.9 ^[20], about 9% short of the conversion price ^[21].

I think CIG has bought cheap money. The bonds carry no coupon ^[5], and the below-market price applies only to the roughly 30% of the raise sold as stock ^[24]. The counter-case is the calendar. Three of the four countries named for the new capacity are outside China ^[9], and part of the money for them is borrowed against a 2027 maturity ^[5]. If the stock has not cleared the conversion price by then, CIG faces repaying 3.96 billion yuan ^[6] or refinancing on whatever terms are on offer. The view is wrong if the H shares are still below HK$128.82 when the bonds mature. The report does not split the US$832.6 million by country, name the upstream companies CIG may invest in ^[10], or give the bonds' redemption terms.

On the day CIG's H shares rose, Shanghai Biren Technology, a GPU developer, was selling straight equity in the same market ^[1]. Its placement of 130 million shares at HK$31.08 is about 5% of its issued shares ^[2]. Agents are selling it on a best-effort basis, and it is Biren's second placement since a January listing ^[3]. Biren closed at HK$30.36, HK$0.72 below the price its placement buyers are being asked to pay ^[23].