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Complex deals will still be flavor of the month

Vanilla deals fell out of favour in equity-linked issuance in 2005, with highly complex, structured transactions building unprecedented dominance. Despite higher volatility levels than in 2005 and a very promising M&A outlook, this trend is likely to continue in 2006. Peter Koh reports.

FOR THE EQUITY-LINKED market in Europe and the Middle East, 2006 is starting out in much the same way as 2005, with a one-of-a-kind, multi-billion dollar, highly complex structured trade. Dubai Ports, Customs and Free Zone Corporation’s $3.5 billion Shariah-compliant pre-IPO convertible bond is not only a first of its kind in Islamic finance but also one of the 10 biggest convertible bonds of all time [see Dubai Ports raises $3.5 billion, this issue].

The deal is part of a larger overall financing package for the Dubai-based group, currently involved in a bidding war with Singapore’s Temasek for P&O’s ports business, that uses a completely custom-made structure to fit its specific needs and the market environment.

This time last year, it was Allianz that kick-started the market with an equally custom-made and even more complex ‘all-in-one’ deal that made use of highly structured equity-linked bonds to achieve multiple corporate finance objectives.

Large deals, thin volume

Despite the tremendous success of that deal, which made for an auspicious start to the year, the volume of equity-linked deals in 2005 fell by 30% to its lowest level globally since 1998. Equity-linked deals raised just $77 billion in 2005 and accounted for only 10% of equity capital markets’ revenues at investment banks.

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