Baidu Targets $2 Billion in Exchangeable Bonds

(Bloomberg) — In a significant financial maneuver, Chinese technology giant Baidu Inc. has announced its intention to raise $2 billion through a sale of bonds that are exchangeable into the Hong Kong shares of Trip.com Group Ltd.. This offering marks one of the largest dollar amounts ever raised in this format by an Asian issuer, reflecting Baidu’s strategic approach to capital management.

Details of the Exchangeable Bonds

The exchangeable bonds, which are set to mature in 2032, were detailed in a statement released by Baidu on Friday. The company plans to utilize the proceeds from this offering for various purposes, including repaying existing debt, covering interest payments, and funding general corporate activities. Notably, these bonds carry a zero coupon and were priced at an exchange premium of approximately 43% over the price of HK$491 per Trip.com share, as indicated in a related private transaction.

Market Reaction and Share Performance

On the day of the announcement, Trip.com shares closed at HK$511.50 each in Hong Kong, reflecting a positive market response. This bond offering follows Baidu’s recent sale of 10 billion yuan (equivalent to $1.4 billion) in bonds outside of mainland China, marking its first debt issuance since 2021. Baidu is a significant shareholder in Trip.com, which adds another layer of interest to this financial move.

Capitalizing on Market Trends

Baidu’s decision to issue these exchangeable bonds comes amid a broader trend of companies leveraging the recent rally in Chinese stocks to raise capital. Earlier this week, electric vehicle manufacturer BYD Co. successfully raised $5.6 billion in a share sale, marking Hong Kong’s largest offering in nearly four years. The surge in stock prices has been fueled by DeepSeek’s advancements in artificial intelligence, igniting a buying frenzy in the Chinese stock market.

Government Support for AI Development

The tech sector received an additional boost this week following announcements from Beijing during the National People’s Congress, indicating strong support for the extensive application of large-scale AI models and the development of next-generation intelligent terminals and manufacturing equipment. This government backing is expected to further enhance the growth prospects for companies like Baidu.

Baidu’s Stock Performance

Despite the positive market environment, Baidu’s shares have not fully capitalized on the recent stock rally. The company’s Hong Kong-listed stock has seen a modest increase of 9.8% this year, significantly lagging behind the 35% gain in the Hang Seng Tech Index during the same period. This underperformance raises concerns about Baidu’s ability to compete effectively in the rapidly evolving tech landscape.

Financial Challenges Ahead

Adding to the challenges, Baidu reported its third consecutive quarterly revenue drop last month, highlighting ongoing concerns regarding its internet search and AI businesses. The fierce competition in the tech sector has put pressure on Baidu, prompting the company to explore innovative financial strategies to stabilize its operations.

Conclusion

As Baidu moves forward with its bond offering, the involvement of major financial institutions such as JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc., and Bank of America Corp. in arranging the exchangeable bond reflects confidence in Baidu’s strategic direction. The bonds are expected to be listed on the Open Market segment of the Frankfurt Stock Exchange, further expanding Baidu’s financial footprint.

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