Heading into orbit
The 50% surge in European convertible issuance in 2013 has shaken up the market. At long last, there are several firms competing at the top. But none has seen its market share grow over the past two years as impressively as UBS, IFR’s EMEA Structured Equity House of the Year.
Deal volumes in the EMEA structured equity market have surged, providing several firms with an opportunity to grow once again. With so few new issues in previous years, issuance had coalesced around just a couple of banks. But that all changed in 2013.
The recent past has not been easy for UBS. Its output fell for three consecutive years and the bank scaled back its team, though it remained one of the larger teams in the industry in Europe. The Swiss bank had once been a major force in European convertible issuance, but that was a decade ago. In 2013 it was back with a bang.
In the IFR awards year, deal volume increased by over 50% – on top of the 40% growth the year before. Issuance from UBS more than doubled 100% in both those years. Bank of America Merrill Lynch and JP Morgan also deserve honourable mentions, the former for steady growth in output for four years in a row and the latter for recapturing a glimmer of its former self following a complete change of staff.
But UBS was most prominent in two key developments in the year – the move of non-recourse exchangeable bonds into the mainstream and the introduction of taps of existing issues.
It is perhaps remarkable that convertibles had not been tapped previously, yet the introduction is important. First, it is good corporate finance as it allows issuers to capitalise on excess demand for their bonds at improved prices. Second, the use of just one bank to run a tap allowed firms to stand out from a multi-bookrunner syndicate at first issue.
UBS was two for two after it secured the sole role for both of its deals that were tapped – the exchangeable from OHL into OHL Mexico and Spanish hotelier Melia. The wins were significant as the Swiss bank was up against other frontrunners for this award: JP Morgan, BNP Paribas and Bank of America Merrill Lynch.
But then the bank was used to working alone, having secured far more sole bookrunner slots than any other. Other banks in Europe were lucky if they had one sole slot. (Deutsche Bank dominated the league table but had none on primary issues*.)
“We are able to convince issuers to use us alone. The question is what drives pricing? Not the technicals anymore. Plus anyone can price a convertible bond on their iPad,” said Armin Heuberger, head of equity-linked in the EMEA region at UBS. “It is outright demand based on equity stories. That plays to the strength of our research and equities platform.”
In addition to the taps, UBS was sole-lead on a SFr218m (US$228.5m) exchangeable bond from lift company Schindler into consumer electronics firm Also and on a two-part issue by Impala Platinum of South Africa comprising R2.67bn (US$300m) 5% bonds for locals and US$200m 1% bonds largely for internationals.
An urge to maximise value meant launching Also with a fixed conversion price of just over SFr60. Remarkably the underlying actually rose 5.5% on the day of issue showing the significance of attracting outright investors to new issues.
Exchangeable leader
UBS also led the region when it came to exchangeable bonds, with GBL’s bond exchangeable into GDF Suez and La Caixa’s into CaxiaBank, in addition to those by OHL and Schindler.
OHL’s issue in March used an overcollateralised structure but with the additional complication of a Mexican underlying. OHL issued through wholly-owned subsidiary OHL Concesiones, but with no guarantee from the parent. There was a complicated mix of Mexican and Luxembourg law pledges over differing amounts of underlying stock.
The bonds also priced at the best terms for the investors – a rarity in 2013 – but from a €250m launch size raised €300m at 4%, up 25%.
The tap added €100m in October (launched at €75m) and was covered in 17 minutes. Demand of €500m allowed for pricing at 102 where the effective premium was now 40.5%.
* Updated to clarify this is a reference to primary issues.
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