By John Loh
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After years of struggle, Asia’s equity-linked market is back with a roar. So far this year, the 40 or so deals priced in the region (excluding Japan and onshore China) have raised a total of $9.7 billion, marking a dramatic increase from a year ago when issuers did 22 deals and raised $1.5 billion, according to Dealogic.
“The boom in equity-linked issuance is long overdue,” says Jennifer Choi, an equity-linked origination banker at Credit Suisse. “The market is finally catching up because of rising rates and the outperformance of share prices.”
Another big catalyst for convertible bonds this year has been the return of China’s property developers, according to Nathan McMurtray, CLSA’s head of equity-linked products. They were the single biggest source of issues before the financial crisis struck in 2008, but have been largely absent over the last decade because of the availability of other, cheaper sources of debt.
Three-year dollar swap rates have climbed about 80 basis points recently, dealing a direct hit to coupon rates on straight bonds, which tend to widen by the same amount. The equity option on equity-linked bonds, however, makes them less sensitive to rate increases.