CHINESE tech firms are tapping the convertible bond market at an unprecedented pace.

Companies from the industry have raised a record US$3.4 billion in convertible bond sales this year, nearly double the total during all of 2018. Netflix-style streaming service iQiyi Inc. and the country’s top anime site, Bilibili Inc., were among the latest sellers.

A global stock rally and attractive financing costs are driving the surge of convertible bond sales by Chinese companies, some of which haven’t obtained credit ratings. Investors typically bet on convertible bonds for potential gains on the equity conversion, meaning the two markets tend to move in tandem. The Dow Jones Industrial Average has risen more than 20 percent from a December low and is close to its all-time high.

“Many of these companies are not cash flow positive, so it is more challenging for them to access the loan and bond markets,” said Li Zheng, head of equity solutions group for Asia ex-Japan at Goldman Sachs. “Convertible bond investors have been willing to fund high growth companies because it allows them to participate in the upside with the conversion option.”

The securities also provide companies a fundraising option in the event that initial public offering results don’t meet top-line expectations.

NIO Inc., a Chinese competitor to Tesla, sold US$650 million in convertibles in February, months after pricing its U.S. IPO near the bottom of a marketed range.

“2018 was a challenging year for markets, with some companies unable to raise as much as they may have wanted through their IPO,” said Jennifer Choi, director of equity-linked origination at Credit Suisse Group AG. (SD-Agencies)