A tale of two emerging markets
Although they form a global market worth more than $350 billion - and have a pedigree dating back more than a century - convertible bonds are all still regarded in many quarters as exotic and obscure instruments. Often associated with start-up or high-risk corporate borrowers, most convertibles are still domestic US issues.
But convertibles are coming into the mainstream of the international capital markets. Partly this reflects their growing use in emerging markets. Partly, it is because new structures such as synthetic Euroconvertibles are bringing highly rated corporate borrowers -especially blue-chip European companies - into the market for the first time. Driven by strong demand from institutional investors, issuance of Euroconvertibles is increasing rapidly in parts of the world where such structures were once a rarity.
In Germany, for example, the Euroconvertible is one of the fastest growing markets, rising from virtually nothing at the beginning of 1996 to the present total of more than $4.7 billion. According to Jeremy Howard, head of global convertible research at Deutsche Morgan Grenfell, this figure "is capable of growing by Dm5 billion [$2.8 billion] by the end of 1998 and by at least a further Dm25 billion before the turn of the century".