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End of drought: convertible bond issuance returns with a bang

The European convertible bond (CB) market has roared back to life in September after little to no issuance in the previous eight months of 2022. Banks now hope the party keeps rolling, with eyes on new paper with aggressive terms that makes the most of investor pent up demand.

Europe has seen five new issues worth more than USD 1.8bn in September, by far the best month of 2022. Deals include a EUR 960m mandatory convertible bond from Siemens Energy [ETR:ENR], a EUR 300m green convertible bond from French renewable energy company Neoen [EPA:NEOEN] and a EUR 380m convertible bond from French laundry company Elis [EPA:ELIS], the first new issue this month to be eligible for inclusion in the Refinitiv Europe Focus Convertible Bond index, the main industry benchmark.


The five deals seen so far this month have allowed issuers to raise significant funds through equity instruments rather than costly new debt, for a variety of corporate purposes.

Early signs point to it being a sellers’ market as all new paper has so far found plenty of demand. In the case of Elis, the deal was priced at hugely favourable terms to the issuer, particularly the 42.5% conversion premium at which the stock can convert into shares.

Some investors griped to this news service at the time that terms were too punchy, adding that if issuers and banks are not careful, they would alienate investors.

However, multiple sources say that a lack of issuance so far this year has led to pent up demand and huge support for new paper, even on terms that many traditional CB investors might not like.

Some large hedge funds are acting more like institutional investors and placing anchor orders in deals to get sizeable allocations, said one equity-linked banker, taking transactions across the line on favourable terms to the issuer.

This news service reported last week that Elis was supported by two anchors, which helped with pricing.

Redemptions of existing convertible bonds are also stoking demand for new bonds, another banker added. Both Neoen and Elis were funding early bond redemption, with much of the demand coming from old investors rolling into the new deals, sources said at the time.

More convertible bond issuance is to follow given the rising cost of debt driven by rising interest rates, one banker added.

Because equity-linked instruments have the embedded equity call option to convert into shares, they are cheaper financing tools for companies, he added.

Convertibles have come in from the cold, at least for now.