Reports of 2018 Convertible Issuance are Greatly Exaggerated!

29 November 2018

It has come to our attention that there have been some pretty wild numbers doing the rounds in the media recently, concerning total issuance in the convertible market for the year-to-date.

Not quite the record year reported elsewhere

We suspect that the numbers published were merely the result of a rather sloppy failure to uncover errors in the data*, that should have been immediately obvious to anyone with any real knowledge of the convertible market, but in the interest of accuracy we publish below our own data, based on the Monis Data Service, which we believe to be a true representation of the global aggregate issuance of investable^ convertible instruments.

In general, 2018 has been a reasonable year for issuance, although it has not been without its disappointments. To date, USD 96.3bn has been issued across the convertible markets globally in 2018; it has not really turned out to be the stellar year it had looked like we might get earlier in 2018 (and certainly not the USD 935bn record year some have asserted!)

Convertible Issuance /$bn
Convertible Issuance /$bn

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Convertible Issuance /$bn

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Convertible Issuance /$bn

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As we reported at the time, 2018 started with exceptional issuance in January. In fact issuance remained strong throughout the first half of the year; average aggregate monthly issuance for the first six months was just over USD 11bn, compared to an average of USD 7bn over the preceeding five years. However, during the second quarter EMEA was already starting to show signs of weakening supply in the primary market, and the domestic Chinese A-share convertible pipeline, that had shown such promise in Q1, slowed to a trickle as equity markets sold off. Following the typically quieter months of July and August, new issue volumes again picked up in September, before a broad sell-off across many major equity markets served to put the brakes on issuance in October. November has seen levels pick up once again, with particularly sizeable contributions from Asia ex-J, Japan and Chinese A-share convertible markets.

Variable picture at the regional level

The US market has certainly experienced stronger levels of issuance this year; at USD 50.3bn 2018 has already seen the highest level of issuance in the last 10 years. The average run-rate of USD 5.1bn per month to the end of September, compares to a historical monthly average of USD 2.9bn over the preceeding 9 years. The same cannot be said for the emea region. At a total of USD 12bn going into the final month of the year, 2018 is set to be the worst for issuance since 2011. Asia and Japan have both had respectable levels of issuance this year, albeit in rather lumpy fashion timing-wise. The Chinese domestic A-share convertible market promised, and started off delivering, a great deal in2018, but a sell off in the equity market in the second quarter put paid to much of the pipeline; this market is only now starting to pick up again with just over USD 2bn issued in November.

Outlook for 2019

With so many different factors impacting on the CB primary market, it is incredibly difficult to forecast issuance levels for the year ahead. In the US, conditions still seem to be aligning so as to create a reasonable sweet spot for issuance, and we expect to see this continue into 2019. In Asia, despite the relative disappointment this year, we expect to see the Chinese A-share convertible market to continue to grow strongly and become a major market in its own right. In EMEA, where conditions seem far from creating a sweet spot, we do not yet see catalysts for this to change in the near term.

* which we believe may be due, at least in part, to an incorrectly recorded issue size for the AXA exchangeable mando into EQH.

^ investable convertibles are those with an issue size of at least USD 50mn equivalent, or USD 100mn for the Chinese A-share market

Philip Kramer, CFA
+44 20 8081 3775
Tatyana Hube, CFA
+1 646 445 8334
Will Weichhart
+44 20 8081 2078
Monis Data
+44 20 8081 2700

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