(Bloomberg) -- Equity-linked debt issuance by Asian firms is set for its busiest quarter since March 2022, with a $1 billion convertible bond from Chinese electric-vehicle maker Nio Inc. adding to signs of growing demand for the hybrid instruments.

Including Nio’s latest deal, proceeds raised via such notes by the region’s borrowers totaled $12.8 billion, the highest since the first quarter last year, Bloomberg-compiled data show. The Chinese automaker’s offering is the biggest among Asian firms since South Korea’s LG Chem Ltd.’s $2 billion deal in July. 

The issuance boom is testament to the popularity of equity-linked bonds in an environment of rising interest rates, given the appeal of their lower coupons and the potential for investors to profit from a rise in underlying share prices. The hybrid instruments also offer companies an alternative financing tool at a challenging time for traditional stock financing.

The convertible bond market “has been very resilient throughout the recent period of volatility and remains fully functioning regionally and globally,” said Christian Lhert, a managing director responsible for equity-linked origination in Asia ex-Japan at Goldman Sachs Group Inc. “A number of issuers across industries and geographies in Asia are expected to continue to take advantage of the strength of the product in Q4.”

There’s been a broadening of the use of such bonds from traditional high-growth, capital-hungry companies to “more established, profitable blue-chip issuers,” Lhert added, as they are “primarily focused on the very meaningful coupon savings the product offers vs. straight loans or bonds in the current, high interest rate environment.”  

Shanghai-based Nio, which is listed in New York, Hong Kong and Singapore, priced two tranches of dollar convertible notes that will mature in 2029 and 2030, respectively. The coupon is as high as 4.625%. The company has said it plans to use part of the proceeds to repurchase some of its existing debt securities, among other purposes.  

Nio shares in Hong Kong slumped as much as 14% Wednesday, the most intraday loss since March, as the conversion premium offered is seen as attractive enough for investors to sell the stock and buy the equity-linked notes. 

“Some equity holders of Nio may choose to sell their equity and buy convertible bonds, to chase coupon and bond principal payments,” said Steven Leung, executive director at UOB Kay Hian Hong Kong Ltd. “The convertible bond issuance at the expense of share decline indicates the urgency for the company to raise funds.” 

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