Equity issuance breeds hope

By Anuj Gangahar Published: May 4 2009 19:51 Last updated: May 4 2009 19:51 Tangible signs of revival in the global equity capital markets took place in April, with the amount of money raised through initial public offerings, follow-on offerings and, most noticeably, convertible bonds, reaching levels not seen since mid-way through last year. While the stock market rally itself lost a little of its momentum over the course of the month, following the powerful gains seen in March, the markedly higher level of issuance suggests that those who have recently argued that green shoots of recovery are appearing might now have some compelling evidence to back them up. Over the course of April, a total of 23 convertible offerings raised $3bn, more than 22 times the amount raised in March and the most raised in a single month through convertibles since July last year, when 68 deals raised $6.7bn, according to Dealogic, the data provider. Leading the way was the $1.7bn deal by mining company Anglo-American and a fractionally smaller deal by ArcelorMittal in Luxembourg. US Steel Corp last week raised $862.5m in the largest American deal of the month. Serkan Savasoglu, co-head of convertibles and equity derivatives capital markets at Morgan Stanley, the leading bookrunner for equity-linked deals so far this year, said there was more activity both in terms of issuance and dialogue with clients. “Although the economy is weak, there is a great deal of financing that needs to be done. “There are lots of investment-grade and high-yield bonds coming to maturity in the next few years. So companies need to finance and, in many cases, the convertible market offers an ideal way of filling the holes,” he said. The largest convertible offerings were bigger than the largest IPOs, demonstrating that companies remain wary of staging high-profile debuts on global stock markets that continue to display volatility, in spite of the recent broad rally. The CBOE’s Vix index, known as Wall Street’s fear gauge, approached 40, a level normally associated with heightened levels of distress, as recently as April 20. So, despite a few successful IPOs this year, a more sustained rush is not generally expected until later this year and following at least a month or two of relatively stable stock market performance coupled with low volatility. Despite the relative quiet in the primary equity capital markets, bankers claimed the dialogue with clients about the possibility of convertibles had been ongoing even during some of the darkest days of the crisis. Most agree that real signs of improvement in conditions became visible in January and the uptick in activity in April has been a function of that. The upturn in convertible offerings and IPOs in April came alongside a surge in follow-on offerings. In total, 262 follow-on offerings raised $62.6bn during the month, the highest amount raised since the same number of deals raised $86.6bn in June last year. The largest of these, and the largest follow-on equity capital raising of the year to date was a $19.6bn raising by HSBC in the UK on April 6.