Despite reasonably supportive market conditions, a record level of M&A, and confident predictions from investment bankers, the volume of new convertibles issuance in Europe over the past four months has dropped to a trickle.
According to senior convertibles bankers the number of deals has fallen to its lowest level in 10 years. Although year-to-date volume looks good, most of it comes from just a few big deals, they say.
One reason, which is supportive of the view of convertibles as bear-market instruments, is that the reasonable level of current valuations makes straightforward equity funding a simpler, easier option.
Another is that issuers are simply finding that the IAS accounting rules that came into effect this year, which require options to be marked to market, have made it much less attractive to issue convertibles under most circumstances. Yet in the US, where the GAAP accounting rules treat convertibles similarly, issuers have reacted differently. US convertibles issuance in the first nine months of this year is almost double the level over the same period last year.
Part of the difference can be explained by tax intricacies but bankers are puzzled that companies in Europe and the US are reacting so differently to such similar rules.