Event - Xinyi Technology (FINV.US) has successfully issued a convertible senior note worth $130 million, maturing in 2030, with an initial buyer's option to increase the amount by up to $20 million, bringing the total issuance to $150 million. The coupon rate is notably low at 2.5% [1][2]. Cost of Capital - The cost of capital includes both the cost of debt and the cost of equity. Generally, the cost of equity is higher than the cost of debt, leading companies to prefer debt financing when feasible. However, if debt costs are too high, companies may opt for convertible bonds as a balanced financing decision [2]. Convertible Bond Terms - The initial conversion rate for the convertible bond is set at 80.8865 ADS per $1,000 principal, translating to a conversion price of $12.36 per ADS. This represents a 30% premium over the closing price of $9.51 on June 18 [3]. Use of Proceeds - The proceeds from the convertible bond will be allocated as follows: 40% ($60 million) for stock buybacks and 60% ($90 million) to enhance working capital and accelerate overseas expansion. The stock buyback aims to repurchase shares below $10, while the overseas expansion is crucial for future revenue growth [4]. Potential Dilution - The issuance of convertible bonds may lead to dilution of existing shareholders' equity and earnings per share (EPS). If all bonds are converted, dilution could be approximately 4.8%. However, the stock buyback will mitigate some of this dilution [5]. Fundamental Valuation - Xinyi Technology reported a record net profit in Q1 2025, with a 40% year-on-year increase in non-GAAP net profit. The company has a strong cash position and is well-positioned for overseas expansion, which is expected to contribute significantly to future revenues. The current valuation is estimated at 6-7 times earnings, with potential for increased shareholder returns through dividends and buybacks [6]. Industry Implications - Other Chinese concept stocks may follow suit in issuing similar convertible bonds to secure low-cost financing for overseas expansion and stock buybacks, reflecting a broader trend in the industry [6].