(Bloomberg) -- Two convertible bond deals worth $1 billion in total have broken the summer lull in European equity capital markets, amid optimism that such deal activity will start to pick up in an otherwise quiet year.
Netherlands-based health-care technology group Qiagen NV was selling $500 million of convertible bonds Tuesday, partly to refinance existing debt, according to terms seen by Bloomberg. It follows last week’s €500 million sale by German property group LEG Immobilien SE.
Combined, the deals make up about a fifth of all equity-linked issuance in Europe since January, according to data compiled by Bloomberg. Less than $4.6 billion has been raised in European and Middle East markets this year. That follows annual sales of about $11.4 billion in 2023, Bloomberg-compiled data show.
“European issuance has been well below what was expected by this time of the year,” said Alexandre Fade, senior portfolio manager at Fisch Asset Management. “This was a combination of companies waiting to see if interest rates would come down before going to market and boards were also concerned about dilution when stock prices were lower.”
Convertible bonds can be a cheaper form of financing for corporates, often offering lower coupons than regular debt, but at the risk of diluting existing shareholders if the bonds are exchanged for stock.
Bankers expect volumes to start picking up as existing convertible bonds approach maturity in the next couple of years.
“Upcoming maturities will certainly be a driver going forward, with almost $30 billion of European convertible debt maturing in the next couple of years,” said Rahul Bhandari, head of equity-linked and private capital markets EMEA at Bank of America Corp.
Qiagen has $500 million of convertible bonds due in November. It also expects to repay another $500 million of longer-dated debt next year when investors have the option to sell it back to the company, a Qiagen spokesperson said.
In addition to looming maturities, higher stock prices combined with attractive terms secured in recent deals — “lower coupons than regular debt and high conversion premium,” BofA’s Bhandari said — could help drive equity-linked volumes.
Qiagen’s convertible bonds are likely to price at a 2.5% coupon and a conversion premium of 44%, with investor demand at that price level exceeding the size of the deal, according to terms seen by Bloomberg News.
That compares to a 1% coupon and 37.5% conversion premium for the LEG Immobilien issue.
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