Thanksgiving is around the corner. The year 2025 is no doubt one to be thankful for among participants in what used to be considered a niche universe of equity-linked bonds.

Not only is the worldwide year-to-date issuance so close to challenging 2020’s record high, it has delivered returns from teens to over 20% or even more in some cases. The number of USD 1bn-plus deals has also hit an all-time high.

“Convertible bonds remain an attractive growth-financing source for companies. Refinancing is always a significant driver of issuance, but so is financing growth, both capital expenditure and (mergers and acquisitions),” said Ivan Nikolov, head of convertible bonds at Fisch Asset Management. “With the ongoing Capex super-cycle, we expect CB issuance to continue, especially from AI-related companies.”

Nikolov said he expects to see more CB issuance to finance increasing M&A activity.

“Larger deals often come from large companies that are naturally more likely to be (investment-grade), but now also from medium-sized companies undergoing expansion, e.g., in the AI space,” he commented.

As of 13 November, the market had printed 46 deals YTD that raised USD 1bn or more, which doubled 2024’s 23, and beat 2021’s count of 36, year-on-year, based on Dealogic data.

Global issuance of equity-linked bonds totaled USD 167.6bn, 48% over the USD 112.7bn during the same period last year. The year-to-date total has surpassed the USD 166.6bn recorded in 2021, to only come after 2020’s USD 173.0bn – the highest ever on record.

In September this year, as much as USD 31bn worth of new papers were priced – a record high for any single month ever globally.

“Don’t underestimate the maturity wall. A significant amount of debt was due in 2025, and it will be again in 2026,” said Nicolas Cremieux, head of convertible bonds at Mirabaud Asset Management.

Redemptions due for 4Q25 globally amount to USD 18bn (Asia USD 6bn, Europe USD 2bn, USD 9.5bn, and Japan USD 500m). The total will balloon to USD 87bn for 2026 (US USD 67bn, Europe USD 11bn, Asia USD 7bn, and Japan USD 2bn), according to Cremieux.

Multiple participants have suggested that this super-cycle will be different from any before, due in part to relatively disciplined deal terms and structure at prints, as well as a different mix of investors involved in the market.

“It was OK….because in the US the papers are priced cheaply with around 75% of natural buyers being hedge funds…and they expect 2-3 points left on the table,” Cremieux said.

The situation in Europe was less favorable for investors as there was too much capital chasing too little issuance.

The average coupon at issuance fell considerably in September compared with a year earlier, while the premium at issuance richened a tad, according to Cremieux.

The 12-month average coupon as of September was 2.15% (US 2.59%, Europe 1.76%  Asia 1.59% and Japan 0.17%). In September 2024, the global coupon averaged 2.84% (US 3.36%, Europe 3.23%, Asia 2.3% and Japan 0.01%).

The 12-month average premium at issuance as of September came in at 31.19% worldwide (US 32.93%, Europe 34.83%, Asia 26.81% and Japan 18.22%). The year-earlier reading was 29.77% globally (US 31.92%, Europe 35.72%, Asia 22.13% and Japan 17.74%).

“Is it sustainable to make new records? We are bullish….we are not overvalued compared with 2008,” he said.

He acknowledged that while many of his peers continued to underweight China to various degrees, China makes up 15%-20% of his portfolio. “Asia has been the best performer globally for three years in a row, demonstrating we’re right to consider allocating capital in Asia, in China.”

Privately-negotiated offerings

A long-time participant, asking not to be named, nonetheless lamented that the Asian books face their own set of challenges.

“Here in this region, other than the typical CB players, we are seeing lots of European monies and such investors as Chinese credit funds flocking to Asian papers,” the participant said. “In the old days, we could sway pricing one way or another relatively easily given our clout; it’s increasingly hard to do so these days.”

Some funds have instead sought privately negotiated offerings, he added.

According to a Chosun report, South Korea’s HLB Group announced on 3 November that it will receive USD 145m in strategic investment from UK-based LMR Partners. Under the deal, LMR Partners will provide funding by investing in HLB Group’s convertible bonds (mezzanine), with LMR Partners underwriting USD 140m in bonds with warrants issued by HLB and USD 5m in HLB exchangeable bonds to be issued by HLB Life Science, according to the report.

HLB issued the BW in an inseparable structure with a single annual interest rate of 5% that integrates the coupon rate and the maturity yield. Warrants can be exercised starting one year after issuance. A condition was also included that secures the authority to request a forced exercise if parity reaches 115% or more of the issue price, Chosun reported.

Returns this year have been nothing short of stellar, driven by better growth fundamentals for CB issuers, said Nikolov.

“The average expected three-year earnings-per-share growth rate stands at 13.2% for CB issuers, still 50% higher than the average for the global stock market,” he said.

According to Cremieux, at the end of September, 39% of the market was trading below par, much lower than a year ago, when 2/3 of the universe traded below par.

“Significant share price gains in underlying equities mean many converts have risen above par. The primary market has created significant opportunities to seek performance again,” he said.

Maybe the largest indices have limited upside potential, but rotations are massive and dispersion among sectors is very high, said Cremieux.

Global Top 10 Equity-linked Bond Offerings YTD 2025