Issuance of equity-linked debt, including convertible bonds, could hit a record high in Asia-Pacific this year, driven by Chinese firms seeking lower-cost funding and investors betting on market gains amid global volatility, according to bankers.
So far this year, investors have shown a strong appetite for US$10 billion in convertible and exchangeable bond offerings by issuers from mainland China and Hong Kong, including Baidu, Ping An Insurance (Group) and Chow Tai Fook Jewellery Group – even when the deals carried aggressive terms.
They accounted for a big chunk of the US$13 billion total issuance volume in Asia-Pacific excluding Japan and mainland China onshore shares, according to data compiled by Dealogic. The total is on track to exceed last year’s record of US$25.7 billion.
“Convertible bonds are an instrument that resonates with many institutional investors in the current market,” said Brian Chau, co-head of equity-linked deals for Asia at UBS. “They offer downside protection while providing equity upside, which is particularly appealing given the macro volatility.”
In the past 12 months, Asia-Pacific excluding Japan recorded issuance of around US$32.9 billion in convertible and exchangeable bonds – debtlike instruments that pay interest and include an upside call option to convert into either the underlying stock of the issuer itself or exchange them for another stock in which the issuer holds a stake.
