Hong Kong-listed Chow Tai Fook Jewellery Group Limited (1929.HK) has proposed a substantial HK 1.1 billion) zero-coupon convertible bond issue, according to a filing with the Hong Kong Stock Exchange. The bonds will carry a conversion price of HK 13.32.
Key Terms of the Convertible Bond
The five-year bonds will feature:
- Zero coupon structure with no periodic interest payments
- 30% conversion premium to current market price
- Potential dilution of about 7.5% if fully converted
- Proceeds earmarked for debt repayment and working capital
Strategic Rationale Behind the Move
The offering comes as the luxury jewelry retailer navigates shifting consumer patterns in Greater China, its core market. The convertible structure allows Chow Tai Fook to:
- Strengthen liquidity amid volatile gold prices
- Reduce interest expenses compared to conventional debt
- Potentially expand shareholder base through equity conversion
Analysts suggest the timing reflects management’s view that the current share price undervalues long-term growth prospects, particularly in mainland China’s lower-tier city expansion. The zero-coupon feature makes the bonds particularly attractive in the current low-interest-rate environment.
Market Reaction and Industry Context
Chow Tai Fook shares were suspended Wednesday pending the announcement. The company’s last major financing was a HK$5 billion sustainability-linked loan in 2022.
The jewelry sector has seen mixed capital market activity recently, with competitors like Luk Fook opting for bank financing while Chow Sang Sang raised HK$1.5 billion through a bond issue last quarter. Chow Tai Fook’s larger convertible offering signals confidence in its ability to attract institutional investors despite recent softness in Hong Kong’s retail sector.
Joint global coordinators for the offering include HSBC, Credit Suisse, and Bank of China International. The bonds are expected to price within the week, with proceeds available by early July.
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