Hong Kong: Lehman Brothers Holdings Inc., the fourth-largest arranger for equity-linked sales in Asia, expects India and China to be the fastest-growing markets for convertible bond sales in the region.
“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 2-2.5% managing equity-linked debt sales for companies in India, while in South Korea and Taiwan, fees have fallen to 0.5% due to competition from local securities firms, Hong said on 26 April.
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(Rs24,190 crore) selling convertible bonds this month, 67% more than the same period of last year. 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.
“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% in the five days ended 5 March. 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. The Asia-Pacific region accounted for 12% of the fee pool last year, compared with 54% for the US and 34% for Europe, Wieseneck said.