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Australia convertibles boom outranks India

Australia convertibles boom outranks India
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First Published: Mon, Aug 06 2007. 09 59 AM IST
Updated: Mon, Aug 06 2007. 09 59 AM IST
Sydney: Australian firms are the second most active issuers of convertible bonds in the world this year, behind the United States, according to Thomson Financial data, a trend bankers, and this trend is likely to continue.
Australian borrowers have issued $6.4 billion (Rs25,600 crore) worth of convertible bonds so far this year, and are on track for a record year.
They are the most prolific issuers in the Asia Pacific region with 26 convertible offers, outranking India, the regional convertible champion of 2005 and 2006, according to Thomson data.
Convertibles in Australia have traditionally been dominated by the capital-intensive mining sector, but other sectors are discovering the attractions of convertibles as a cost-effective way to fund acquisitions.
“As long as credit markets stabilize again, the convertible market will be very active in the second half of the year and I expect them to be M&A-related,” said Matthew Roberts, head of equity capital markets at JPMorgan.
A surge in Australian M&As over the last year, in particular in the real estate sector, has made it the largest market for deals in Asia with $165 billion worth of transactions recorded in the year to date, according to Thomson Financial data.
That is double last year’s figure for the same period, outranking number two, Japan with $84 billion worth of deals.
The Australian M&A boom has been fuelled by private equity firms attracted to the nation’s mature companies, stable economy and compulsory pension schemes.
Real estate more competitive in capital management
Australian real estate firms have been more dynamic and competitive in their capital management than their European rivals, said Steve Hawkins, managing director investment banking at UBS.
“It’s not surprising to see Australian-listed property trusts have recognised first the benefit of structured convertibles since, for the past 10 years, they have been driving innovation in terms of acquisition finance,” Hawkins said.
Among the largest convertible bonds completed by Australian LPTs this year, CSF Retail Property Trust raised $513 million, Centro Property Group $500 million and ING Industrial Fund A$400 million.
Infrastructure fuels fund acquisitions
Infrastructure is another sector increasingly using convertibles to fund acquisitions.
Macquarie Communications Infrastructure Management sold two convertibles this year for just under A$1 billion.
Convertible bonds stand between debt and equity, allowing companies to avoid issuing, and diluting, more stock at a time when their share price is expected to increase.
They allow investors to receive regular payments and also benefit from a share price appreciation when the securities convert into equity.
Demand for the assets has also been increasing with investors, predominantly Asian and European convertible funds, scrambling to fill their funds.
“It’s because the market is very much under-supplied,” said a banker who asked not to be identified.
In addition, investing in Australia presents a number of attractions, with a banker citing a low risk exposure, good transparency and a very liquid stock exchange.
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First Published: Mon, Aug 06 2007. 09 59 AM IST