Shareholder value is a convertible issue
Euromoney Limited, Registered in England & Wales, Company number 15236090
4 Bouverie Street, London, EC4Y 8AX
Copyright © Euromoney Limited 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Shareholder value is a convertible issue

It's all in the price

Zapped by negative gamma in Japan

In Europe, the desire of companies to restructure their balance sheets to offer shareholders more value is a major factor driving convertible issuance. However, using convertibles is often far from straightforward. "Pre-emptive rights for anything equity-related and limited flexibility for corporate share repurchases have restricted market growth," says Farley Bolwell, managing director at Merrill Lynch.

Nor is it immediately obvious why issuing a convertible would be a useful tool in offering value to shareholders. "I used to think that it [shareholder value] would be a negative for convertible bonds, but the National Grid issue puts the lie to that," says Chris Davenport, vice-president and European convertibles analyst at Salomon Smith Barney.

When UK electricity company National Grid announced a share buy-back structured through a £460 million ($754 million) convertible bond a good many people were perplexed, and understandably so. Here was a company using cash on its balance sheet to buy back shares only to reissue the same number of shares five years down the line. The logic seemed rather perverse, and initial reaction from the UK press reflected the confusion, with a number of large institutional shareholders condemning the strategy.

Gift this article