FirstFT: US companies are turning to convertible bonds

Good morning. US companies are turning to convertible bonds as fundraising in Wall Street’s main equities market is at its lowest level for three decades.

December was the busiest month of last year for convertible issuance by deal count, according to Refinitiv data, as activity picked up over the second half of 2022. The amount that US-based companies raised more than doubled in the second half from the preceding six months, after a sharp earlier slowdown.

Michael Zeidel, head of Americas in law firm Skadden Arps’ capital markets division, said that “for more than 80 per cent of the year, the [convertibles] market was essentially dead” but it had “opened up” in the past two months of 2022 “and we are now seeing activity”.

Extreme volatility and rising interest rates made 2022 the worst year for traditional stock market listings in the US since 1990. Most experts think it will take at least another quarter for IPOs — the most lucrative and high-profile part of the equity capital markets business — to pick up.

But a recent steadying in valuations and encouraging inflation data have prompted a burst of activity in deals deemed to be less risky, especially sales of convertible bonds — debt that includes an equity component.

“Converts are always a market that tends to be interesting to a broader array of companies when other markets are experiencing difficulties,” said Craig McCracken, co-head of equity capital markets at Wells Fargo, “because of their greater certainty of execution”.

Five more stories in the news

1. Bond traders set to test BoJ ahead of policy decision The Bank of Japan meets this week for the final time before a new governor is named and confronts intensifying pressure to abandon its yield curve control policy. Traders have warned that bond and currency markets face a week of turmoil, and are contemplating three possible outcomes for the bank’s policy path.

2. Russian fertiliser revenue soared last year as prices jumped In the first 10 months of 2022, Russian fertiliser exports jumped 70 per cent to $16.7bn compared to the same period in 2021. Russia is unlikely to continue to benefit from higher prices this year, though, since warmer than normal weather has caused gas prices to fall, and in turn have brought down the price of fertiliser.

3. WHO asks China to release more data on Covid-19 outbreak Beijing reported almost 60,000 deaths over the weekend since abandoning strict pandemic restrictions last month. The World Health Organization has followed up with China’s National Health Commission to request “a more detailed breakdown of data by province over time”, as well as information on sublineages of the highly transmissible Omicron variant.

4. Thousands of Israelis protest against Netanyahu’s judicial reforms About 80,000 Israelis took to the streets on Saturday night to protest the hardline new government and its plans to curb the power of the judiciary. The demonstrations are the biggest show of public defiance since Benjamin Netanyahu returned to power last month.

5. China takes ‘golden shares’ in Alibaba and Tencent units Even as it backs away from heavy-handed crackdowns, Beijing is taking a greater role in overseeing China’s tech groups by snapping up small equity stakes in their local operations. The “golden shares” come with special rights over certain business decisions, allowing the state to exert influence on private companies.

The day ahead

World Economic Forum The annual meeting opens today in Davos, Switzerland, bringing together world leaders and business heads to discuss pressing geopolitical issues

Economic indicators India releases its December wholesale price index (WPI) inflation rate data today.

Corporate results Ashmore has a Q2 trading update, and UMC releases its Q4 results.

Military drills in Belarus Belarus and Russia begin joint aviation drills of air divisions today as part of the two countries’ regional grouping of troops

Martin Luther King Day The US observes a national holiday today to honour the civil rights activist Martin Luther King Jr.

What else we’re reading

The lure of Singapore, ‘Asia’s Switzerland’ US-China tensions remain high, financial markets are skittish and the risk of global recession looms heavily — all of which have increased Singapore’s attraction as a financial outpost and haven. But can the city state maintain its neutrality?

The British scientist who became the penguins’ accidental hero On a rare voyage to Antarctica’s Weddell Sea, Financial Times CEO John Ridding meets Peter Fretwell, the expert revolutionising research into emperor penguins, a species that has become a symbol of climate change.

Apple CEO takes pay cut The iPhone maker is targeting a more than 40 per cent cut to Tim Cook’s pay package in 2023, at the request of the chief executive following shareholder criticism. Apple’s compensation committee decided to award Cook total “target compensation” of $49mn, down from a target of $84mn a year before, according to a regulatory filing last week.

South Korea’s women face ‘boys’ club’ at work For the 26th straight year, South Korea has recorded the worst gender pay gap among OECD economies. The country also has one of the largest gender gulfs in labour force participation. “From the companies’ perspective, female employees are considered to give up their career after marriage and childbirth,” says Kim Nan-joo, a researcher at the Korean Women’s Development Institute.

A trillion-dollar blind spot for asset managers Despite the ongoing ESG push, firms continue to compete to work for authoritarian states with records of rights abuses, writes Toby Nangle, former global head of asset allocation at a fund manager.

Take a break from the news

The FT weekend podcast features a discussion of AI art and the future of human creativity following a recent magazine story. The piece prompted readers to create their own AI works of art. You can see them here.