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GCC debt market ripe for convertible bond issuance

GCC corporates’ strong credit ratings are attractive to global debt investors

Gulf News

Dubai: GCC issuers should issue more convertible bonds (CBs), according to Fisch Asset Management.

Fisch Asset Management, a global leader in convertible and corporate bond strategies, has said that the time is right for GCC issuers to consider marketing CBs to global investors.

CBs have long been a popular corporate financing instrument in the USA, Europe and Japan, but have largely been underused in the Gulf, where institutions looking to raise capital have many advantages to offer CB investors. While recent low interest rate levels have eroded the advantage of convertibles in developed markets, Fisch expects to see a strong rebound in demand, driven by rising interest rates and constructive but volatile equity markets.

“We have already seen a significant increase in investor interest in convertibles, and expect to see considerable growth in demand during 2017. With that in mind, we would welcome supply side growth and an increased volume of new issues, particularly in the GCC, where we believe this asset class could be a very appealing option for both corporates and investors,” Philipp Good, CEO at Fisch Asset Management said.

To date, the GCC has seen a limited number of CB issues, with the most prominent from leading companies such as DP World and National Bank of Abu Dhabi. Compared with other markets, the region has relatively few listed companies and underdeveloped capital markets for corporate bonds. There are also thought to be perceptional issues surrounding convertibles, which are often considered to be complicated instruments* and therefore receive limited coverage by investment bankers. The main advantage CBs offer issuers is a lower coupon than regular corporate bonds, and the contingency of issuing equity at a conversion premium.


“GCC corporate treasurers are increasingly aware of the need to explore alternative capital market funding strategies, such as convertible bonds. We expect these kinds of instrument to become increasingly relevant as GCC markets develop,” Michael Grifferty, President of the Gulf Bond and Sukuk Association (GBSA), added.

“The GCC has a number of advantages when it comes to issuing convertible bonds. Firstly, global investors are increasingly looking at ‘new markets’ for the asset class, given its high concentration in the USA and Europe,” Roland Hotz, Senior Convertible Bond Portfolio Manager at Fisch Asset Management said.

“GCC borrowers typically have good credit ratings, which make them appealing to investors. There is particularly strong potential for convertible issuance by government entities, as a means of reducing shareholdings or divesting them with low market impact. Issuers will benefit from lower interest rate expense, as well as a higher share price when the bond is converted to equity,” he added.