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“Convertibles can only benefit from the increased volatility and rising interest rates” Viswas Raghavan, JPMorgan |
“The equity-linked market is looking a lot more favourable,” says Viswas Raghavan, head of debt and equity capital markets at JPMorgan. “Convertibles can only benefit from the increased volatility and rising interest rates. The market will also benefit from asset price corrections. When share prices go down, companies start asking themselves ‘Why should I sell my shares for lower than they were a few weeks ago when I can sell them at a premium through a convertible?’”
Others agree. “It is definitely true that low interest rates and low volatility make CBs less interesting for issuers,” says Eric Lépine, global head of sales for flow and listed products at Société Générale. “The new interest rate trend and volatility gains should mean that we will see more issues in the second half of 2006. This is good news because without new issues the secondary market would continue shrinking. The pipeline should be OK in the second half of the year but it has been pretty tough so far. In recent days the market has been too shaky for new issues so there is a need to wait for markets to become more reasonable, which happens now with, for example, the Iliad issue on June 21.”