SYDNEY - China's top companies have raised a record $14 billion in offshore convertible bonds so far this year as they diversify future funding needs while interest rates stay high.

Offshore convertible bonds from mainland China accounted for 22% of global deals, LSEG data showed, after Alibaba Group raised $5 billion in May and Ping An Insurance finalised a $3.5 billion transaction last week.

The amount raised so far this year from China is up 1,588% on the same period in 2023, the data showed, when just $829.3 million was raised in convertible bonds.

The pick-up in Chinese convertible bond issuance is giving dealmakers hope that capital market activity will start to lift, especially in Hong Kong, where IPOs are at the lowest point in 15 years. The previous 12-month high was $10.9 billion in 2021.

"If you think about the typical sequence in which the markets reopen, it's typically blocks, primary equity and convertibles that will lead and the last product to reopen is IPOs," said Saurabh Dinakar, co-head of Asia Pacific global capital markets at Morgan Stanley

"In the past two years, we didn't see activity across any of the products. And frankly, there was a lack of conviction from international investors around investing in Hong Kong and China. I think what's changed over the last three months is that some of the confidence has returned."

Dinakar said international investors have shown renewed interest in recent Chinese deals since they exited the market as China recovered from the pandemic.

"Investors want to talk about China, and they want to understand what's going on in China. There has been an uptick in the dialogue. It's not that they are going to rush back in, given there's still a degree of caution, but at least there is a dialogue which was not the case 12 months back," he said.

Globally, there has been $64.2 billion worth of convertible bonds issued in 2024, and in Asia aside from China, Japan's deal value has increased by 486.2%, according to LSEG.

Investors buy convertible bonds because they offer the prospect of equity gains while still paying a coupon, and with their principal repaid at maturity if the option to convert into shares is not exercised.

Bank of America recently upgraded its full-year global convertible bond issuance forecast by 11% and now expects there to be up to $110 billion worth of deals in 2024.

(Reporting by Scott Murdoch; Editing by Jacqueline Wong)