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Preaching to the converted

It could be crunch time for European convertible issuers as redemptions fall due with stocks at long-term lows. Others face the prospect of investors putting the bonds back to them. Yet again it's the telecoms companies in the thick of it all.

Corporates face convertibles crunch

CFOs WHO JOINED in the craze for issuing short-dated equity-linked bonds with aggressive terms may be regretting it today. In theory, convertibles are a great way to sell stock at a premium when current valuations make issuing straight equity unappealing. However, plummeting stock prices since the beginning of 2002 mean that many jumbo convertible bonds issued over the last couple of years are now trading a long way out of the money.

If the maturity date is far away then its finance director can simply sit back and congratulate himself for having secured cheap financing based on a previous, healthier share price. Not all are so lucky though. Lorraine Lodge, head of convertibles research at ING Barings, warns that "2003 is a bubble on the redemption schedule. There will be companies that won't see their convertibles convert and will have to redeem them."

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