Convertibles Re-Emerge

April has been a sweet month for European convertible bond deals. Some $3.21 billion has been raised, snapping a seven-month drought, according to data provider Dealogic, amid a number of positive signs for European share sales.

Bankers predict convertible issuance will remain lively for the rest of the quarter as long as stock markets remain relatively stable.

Convertible bonds, which let investors convert debt into shares, are attractive for issuers because it is a cheaper way to raise debt than by issuing a traditional bond. But issuance dried up after hedge funds dumped existing convertible bonds to offset losses elsewhere and raise cash to meet redemptions, sending prices tumbling.

The biggest convertible bond this month has been the $1.7 billion offering by U.K.-listed miner Anglo American PLC on April 16, managed by Goldman Sachs Group Inc. and Morgan Stanley. Other recent issuers include steel maker Arcelor Mittal SA, consultancy Capgemini SA and property company Unibail-Rodamco SA.

Several signs point to greater stability in European stock markets. That could mean that convertible bonds will account for a substantial portion of the activity in Europe's equity-capital markets this quarter.

One positive has been the opportunities for placing large blocks of stock. J.P. Morgan Cazenove sold shares in U.K. retailer J Sainsbury PLC worth £90 million ($132.5 million) this month for administrators of Icelandic bank Kaupthing Bank hf. It also completed a £68 million share sale by Dutch electronics group Philips Electronics NV of a 17% stake in Pace, which makes set-top boxes for televisions.

"The first trade was to offload a block of equity for an administrator, while the second was a disposal off the back of a stock price rally," said Laurence Hollingworth, co-head of capital markets at J.P. Morgan Cazenove. "The fact that it was possible to execute trades in these different situations is a positive sign for the market."

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