Baidu Announces Pricing of US$2 Billion Offering of Zero Coupon Exchangeable Bonds

Rhea-AI Summary

Baidu (NASDAQ: BIDU) has announced the pricing of US$2 billion in zero coupon exchangeable bonds due 2032. The bonds will reference Trip.com Group shares listed on Hong Kong Stock Exchange (HKEX: 9961).

Key features of the bonds include:

• Initial exchange ratio: 1,107.0457 Trip.com Shares per US$100,000 principal amount
• Initial exchange price: approximately HK$702.13 per Trip.com Share (43% premium)
• Maturity date: March 12, 2032
• No regular interest bearing
• Holders can require repurchase on March 12, 2029 at 100% principal amount

The bonds will be offered offshore to non-U.S. persons under Regulation S, with closing expected around March 12, 2025. Proceeds will be used for existing debt repayment, interest payments, and general corporate purposes.

Positive

• US$2 billion capital raise strengthens balance sheet
• Zero coupon structure eliminates regular interest payments
• 43% premium on exchange price indicates strong valuation
• Flexible exchange terms provide strategic optionality

Negative

• Potential dilution if bonds are exchanged for Trip.com shares
• Additional debt liability of US$2 billion
• Early repurchase option in 2029 creates refinancing risk

Insights

Financial Analyst

Baidu's $2 billion zero coupon exchangeable bond offering represents sophisticated financial engineering that merits careful analysis. The zero coupon structure eliminates periodic interest payments, improving short-term cash flow, though the full principal becomes due at maturity in 2032. This structure suggests Baidu is prioritizing near-term financial flexibility while pushing obligations further into the future.

The bonds' exchangeability into Trip.com shares introduces a valuable optionality component. With an exchange premium of 43% over the current Trip.com share price, Baidu has set a relatively high threshold, indicating confidence in Trip.com's long-term appreciation potential. Importantly, bondholders can't exchange their bonds in the first year and face contingency restrictions thereafter, giving Baidu substantial control over the timing of potential exchanges.

The put option allowing bondholders to request repurchase in 2029 creates a de facto 4-year commitment period before Baidu potentially faces redemption pressure. This balances investor protection with Baidu's need for stable financing. The stated use of proceeds for "repayment of certain existing indebtedness" suggests this is primarily a refinancing transaction rather than new capital raising, potentially extending debt maturities and optimizing Baidu's capital structure without significantly altering its overall leverage position.

Investment Strategist

This transaction reveals Baidu's strategic approach to monetizing its Trip.com investment without immediate divestiture. By using Trip.com shares as the reference asset for these exchangeable bonds, Baidu unlocks $2 billion in capital while retaining flexibility regarding its actual Trip.com shareholding. The company maintains the option to deliver cash, Trip.com shares, or a combination upon exchange, preserving strategic optionality.

The investor hedging dynamics described in the announcement warrant attention. The delta placement and expected short-selling activity by convertible arbitrage investors could create short-term pressure on Trip.com's share price. This mechanical selling pressure, unrelated to Trip.com's fundamentals, may temporarily affect the market value of Baidu's remaining Trip.com stake.

The decision to structure these bonds as exchangeable into Hong Kong-listed Trip.com shares rather than Nasdaq-listed ADSs appears aligned with China's capital market priorities and possibly regulatory considerations. This approach may attract Asian investors while navigating the increasingly complex U.S.-China financial relationship. Overall, this transaction demonstrates Baidu's sophisticated approach to capital management, using financial engineering to enhance flexibility while maintaining strategic investments that complement its core AI business.

BEIJING, March 7, 2025 /PRNewswire/ -- Baidu, Inc. (NASDAQ: BIDU and HKEX: 9888 (HKD Counter) and 89888 (RMB Counter)), ("Baidu" or the "Company"), a leading AI company with strong Internet foundation, today announced the pricing of its US$2 billion in aggregate principal amount of exchangeable bonds due 2032 (the "Bonds"). The Bonds were offered in offshore transactions outside the United States to certain non-U.S. persons (the "Bonds Offering") in reliance on Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act"). The Company expects to close the Bonds Offering on or about March 12, 2025, subject to the satisfaction of customary closing conditions.

The Bonds will reference ordinary shares of Trip.com Group Limited that are listed on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") (HKEX: 9961) ("Trip.com Shares"). Holders of the Bonds may not exchange their Bonds prior to the first anniversary of the issue date of the Bonds. If an event of default has occurred and is continuing, holders of the Bonds may exchange the Bonds at any time. Between the first anniversary of the issue date and the date falling 6 months prior to the maturity date of the Bonds, holders of the Bonds may exchange the Bonds into cash only upon the satisfaction of certain contingencies. Thereafter and until the second scheduled trading day preceding the maturity date, holders may exchange the Bonds into cash at any time. Subject to certain conditions, the Company may elect to deliver Trip.com Shares held by the Company in lieu of cash or a combination of cash and Trip.com Shares. The Bonds are not exchangeable for American depositary shares of Trip.com Group Limited (Nasdaq: TCOM) ("Trip.com ADSs").

The initial exchange ratio of the Bonds will be 1,107.0457 Trip.com Shares per US$100,000 principal amount of Bonds (which is equivalent to an initial exchange price of approximately HK$702.13 per Trip.com Share and represents an approximately 43% exchange premium over the per-share price in the delta placement described below, which was HK$491.00 per Trip.com Share). The initial exchange ratio represents the exchange property referenced by the Bonds as of the issue date, and such exchange property will be subject to adjustment on the terms set forth in the Bonds.

The Bonds will not bear regular interest, and the principal amount of the Bonds will not accrete. The Bonds will mature on March 12, 2032, unless repurchased, redeemed, or exchanged in accordance with their terms prior to such date. Holders of the Bonds may require the Company to repurchase all or part of their Bonds for cash on March 12, 2029 at a repurchase price equal to 100% of the principal amount of the Bonds to be repurchased. In addition, the Company may redeem the Bonds subject to certain conditions.

The Company intends to use the net proceeds from the Bonds Offering for repayment of certain existing indebtedness, payment of interest and general corporate purposes.

The Bonds have not been and will not be registered under the Securities Act or any state securities laws. They may not be offered or sold in the United States or to U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Trip.com Shares currently held by the Company are "restricted securities" (within the meaning of Rule 144 under the Securities Act). Any Trip.com Shares that the Company may elect to deliver upon exchange of the Bonds shall be freely transferable for the purposes of the Securities Act. 

The Bonds are expected to be listed on the Open Market segment of the Frankfurt Stock Exchange.

Investor Hedging Transactions

The Company expects that certain investors in the Bonds who employ a convertible arbitrage strategy may establish a short position to hedge their exposure to the Bonds by short selling Trip.com Shares and/or Trip.com ADSs or by entering into short derivative positions with respect to such securities. Any such activity could take place shortly after the Bonds Offering and could decrease (or reduce the size of any increase in) the market price of Trip.com Shares, Trip.com ADSs or any securities referencing such securities. Further, such investors may dynamically modify their hedges from time to time while the Bonds are outstanding, by selling or purchasing Trip.com Shares and/or Trip.com ADSs in secondary market transactions or entering into equivalent derivative positions, which could affect the market price of Trip.com Shares, Trip.com ADSs or any securities referencing such securities at the time.  

Concurrently with the pricing of the Bonds, certain bookrunner of the Bonds Offering (and/or their respective affiliates) facilitated a sale of Trip.com Shares (for the avoidance of doubt, not Trip.com ADSs), representing the expected initial delta of such hedging investors' short position, in off-market privately negotiated transactions (such sale, a "delta placement").

Other Matters

This announcement shall not constitute an offer to sell or a solicitation of an offer to purchase any securities, in the United States or elsewhere, and shall not constitute an offer, solicitation or sale of the securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

This announcement contains information about the pending Bonds Offering, and there can be no assurance that the Bonds Offering will be completed.

About Baidu

Founded in 2000, Baidu's mission is to make the complicated world simpler through technology. Baidu is a leading AI company with strong Internet foundation, trading on Nasdaq under "BIDU" and HKEX under "9888". One Baidu ADS represents eight Class A ordinary shares.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Baidu may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in announcements made on the website of the Hong Kong Stock Exchange, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about Baidu's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Baidu's growth strategies; its future business development, including development of new products and services; its ability to attract and retain users and customers; competition in the Chinese Internet search and newsfeed market; competition for online marketing customers; changes in the Company's revenues and certain cost or expense items as a percentage of its revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to intellectual property rights; the expected growth of the Chinese-language Internet search and newsfeed market and the number of Internet and broadband users in China; Chinese governmental policies relating to the Internet and Internet search providers, and general economic conditions in China and elsewhere. Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed with the Securities and Exchange Commission, and announcements on the website of the Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this announcement and in the attachments is as of the date of the announcement, and Baidu undertakes no duty to update such information, except as required under applicable law.

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SOURCE Baidu, Inc.

FAQ

What is the size and purpose of Baidu's (BIDU) 2032 exchangeable bond offering?

Baidu is offering US$2 billion in exchangeable bonds due 2032 to repay existing debt, pay interest, and for general corporate purposes.

What are the key terms of BIDU's 2032 exchangeable bonds?

The bonds are zero-coupon, mature in 2032, with an exchange ratio of 1,107.0457 Trip.com shares per US$100,000 principal at HK$702.13 per share.

When can holders exchange BIDU's 2032 bonds?

Holders can't exchange before the first anniversary, then subject to conditions until 6 months before maturity, and freely thereafter until two days before maturity.

What is the repurchase option for BIDU's 2032 exchangeable bonds?

Bondholders can require Baidu to repurchase at 100% of principal value on March 12, 2029.