Baidu’s iQiyi Raises $1.5 Billion with Convertible Notes

(Beijing) — Online video site iQiyi.com, controlled by leading search engine Baidu Inc., said it has raised $1.53 billion in new funding through a convertible note issue, as it competes with rivals for premium content to attract viewers.

Baidu led the group of investors, providing $300 million in new funds, the search leader said in a statement on Tuesday. Other major Chinese private equity investors that participated included Hillhouse Capital, Boyu Capital, IDG Capital and Sequoia Capital.

No details were provided on the terms of the notes, including their maturity dates, interest rates or conversion rates.

“Looking forward, iQiyi will upgrade our IP ecosystem and accelerate our IP-related businesses, especially our subscription business,” said iQiyi CEO Gong Yu. “IQiyi is focused on our goal of becoming a world-class entertainment company leveraging Baidu’s artificial-intelligence technology and content ecosystem.”

Baidu is currently under pressure from investors to improve performance at major units like iQiyi that lie outside its noncore search business and are mostly losing big money. Gong previously told Caixin that iQiyi could become profitable as soon as 2018 as competition in the market starts to ease. Reports of plans for an iQiyi initial public offering (IPO) have also emerged periodically, and some believe the company could try to make a listing as early as this year.

Use of the convertible bond could provide some upside for investors if iQiyi does well and makes an IPO, while reducing risk if it continues to struggle, said Ryan Roberts, an analyst at brokerage MCM Partners. Participation by top Chinese private equity investors shows that domestic buyers continue to like the company, even as foreigners may remain more skeptical, he added.

“I wouldn’t be surprised that they prefer to use domestic sources,” Roberts said. “I’m also not terribly surprised that they decided to use a convertible bond. From an investor point of view, it does provide you with a participation element if things go well: You like the company, you like the prospects. This gives you a blended protection, but also conversion potential on the upside.”

Contact writer: Yang Ge (geyang@caixin.com)