Lehman eyes India, China for growth in convertible bonds
| "India is a new market for us, where fees for arranging convertible bond sales are still kept at a reasonable level,'' said Joonkee Hong, the firm's Hong Kong-based head of global finance for the Asia-Pacific region. |
| Investment banks earn a fee of between 2 to 2.5 per cent managing equity-linked debt sales for companies in India, while in South Korea and Taiwan, fees have fallen to 0.5 per cent due to competition from local securities firms, Hong said in a media briefing yesterday. |
| Companies in the Asia-Pacific region, including China Petroleum & Chemical Corp, Asia's biggest refiner, and Hotel Leelaventure Ltd, India's third-biggest hotel company, raised $5.9 billion selling convertible bonds this month, 67 per cent more than the same period of last year, Bloomberg data show. |
| The market for convertible bonds in the region could reach a record $28 billion this year, according to a forecast by New York-based Lehman. |
| Bumpy Phase "We're seeing a pickup in not just the region, pretty much globally in the past 12 months, as stock markets enter into a bumpy phase,'' said New York-based Larry Wieseneck, global head of the bank's global finance group. "What drives the growth of issuance is the fact that investors now perceive more volatility in the markets.'' |
| The Morgan Stanley Capital International Emerging Markets Index tumbled 10 per cent in the five days ended March 5. |
| The sell-off, triggered by a plunge in Chinese equities and disappointing US economic data, wiped more than $3.3 trillion from stock market values worldwide. |
| Investors withdrew a record $8.9 billion from emerging-market equity funds in early March, according to Cambridge, Massachusetts-based Emerging Portfolio Fund Research Inc. |
| Convertible debt offers investors the security of bonds and the option to benefit from rising stock prices. |
| JPMorgan Chase & Co, Goldman Sachs Group Inc and Morgan Stanley are the top three equity-linked debt arrangers this year in the Asia-Pacific region where the market has reached $13.2 billion, according to data compiled by Bloomberg. |
| Companies in China sold $3 billion of such debt this year, more than five times the $548 million recorded for the same period of 2006. The market in India is at $2.6 billion, Bloomberg data show. |
| In 2006, banks worldwide earned an estimated 36 per cent of their fees from high-yield debt and leveraged finance loans businesses, 25 per cent from equity, 26 per cent from merger and acquisition advisory and 13 per cent from arranging investment-grade debt, Wieseneck said in Hong Kong yesterday. |
| The Asia-Pacific region accounted for 12 per cent of the fee pool last year, compared with 54 per cent for the US and 34 per cent for Europe, Wieseneck said. |