Blue chips are ripe for conversion
"We are even marking down the convertible Eurobond for Kepco, the South Korean electricity utility, as a sell which I never imagined we would have to do," says one banker as he contemplates the havoc wrought by the currency and stock market crash in the Asia-Pacific region.
The region's convertible bond market is one of the main casualties. In fact equity prices have fallen so far that, according to Hamish Bullough, head of convertible sales at Salomon Brothers, "most existing convertibles are trading as straight bonds because the equity conversion element has become effectively valueless". This has happened in a market that only in July was being hailed as one of the world's core convertible markets and touted by bankers as undervalued.
So great is the nervousness of investors that the new issue sector in Asia has virtually ground to halt. One broker says: "Such is the vacuum of confidence that even the normal rational approach of 'let's see the weakness as an opportunity' has gone."
At least $2 billion worth of convertibles for Korean companies, which had been planned for the next three months, now look very unlikely to go ahead.