Board-Ansicht
Mix-Ansicht- Convertible bonds are the flavour of the year - leibovitz, 17.12.2001, 09:19
Convertible bonds are the flavour of the year
Deathbed conversion
Convertibles: It isn’t all doom in the City. The corporate finance and equity departments are eerily silent. But bankers who issue convertible bonds - which give investors the right to convert into shares - are having a spectacular year. So far in 2001, the size of the European convertibles market has increased by a whopping two thirds to about E50bn.
What is the appeal of convertibles? For companies, particularly those seeking to refinance balance sheets stretched after the long boom - it is simple. There are few alternative ways to raise money. Convertibles attract plenty of well-heeled buyers. Hedge funds snap up between 50% and 70% of new issues. These buyers attempt to make money from arbitrage rather than betting on the value of the underlying shares. Extraordinarily high stock market volatility this year has made this a very attractive game.
With convertibles virtually the only show in town, companies are becoming highly innovative at packaging issues. Those wanting to sell down big stakes in rivals they built up in the bull market are issuing bonds exchangeable into those companies’ shares. In the past month, Credit Suisse, Carlton Communications and France Telecom all issued exchangeable bonds. Others - such as Novartis - have used convertibles as a way of dodging tax.
Because buyers are fundamentally insensitive to the fundamental story, they have been willing to absorb these curiosities. But some have stuck in even the most daring throat. Deutsche Bank found it tough last week to sell non-voting certificates compulsorily convertible into BSkyB shares. The reason: the broadcaster’s stock is illiquid, meaning it is hard for buyers to hedge their exposure.
Will the torrent continue? The convertible bankers are hopeful but the odds do seem against. Hedge fund-driven investment depends on stock market volatility. That might die down. Another problem is that too much capital is chasing the sector. This will chisel away at returns. Like many of its predecessors, the convertibles boom contains the seeds of its own destruction.
Author: Hugo Dixon
<center>
<HR>
</center>
Thread gesperrtgesamter Thread:
