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Capital Markets

Convertibles: Middle East and Africa slow shrinking of EMEA equity-linked market

Despite the help of a couple of jumbo multi-billion euro deals by Fortis and UBS, the European convertibles market appears to be shrinking.

New supply to the EMEA equity-linked market adds up to about €17 billion so far this year while redemptions and conversions have led to a withdrawal of an estimated €27 billion.

The shrinkage would be worse were it not for the growing contribution of deals from the Middle East and Africa, which this year added about €2 billion to the total.

The quiet summer period combined with tough conditions in the credit markets made for a slow third quarter, particularly if the €3.2 billion UBS convertible, issued to help Spanish investor Manuel Jove acquire a 5% stake in BBVA, is excluded. The number of convertibles issued in the third quarter was down 47% from the record number of new issues in the second quarter.

"The Middle East has made a significant contribution to EMEA issuance over the last few years," says Luke Olson, a convertibles analyst at Barclays Capital. "Without some of those larger deals the market would have seen a more significant shrinkage in terms of net supply. Although the size of the bona fide convertibles market appears to be contracting, the volume of synthetic deals is of a similar order of magnitude as the total amount of European issuance, so it is debateable how much the market is truly shrinking.

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