Upbeat sentiment fuels demand for cheap fund raising
Equity-linked instruments gain popularity as firms look to expand
Hong Kong companies are following the Asian trend of issuing more equity-linked instruments to raise low-cost funding for business expansion, according to Catherine Leung, the head of Hong Kong corporate finance at JP Morgan Securities (Asia-Pacific).
'The economic sentiment has significantly improved and companies are getting more upbeat and looking for expansion and acquisitions and therefore need to raise capital,' Ms Leung said.
She said equity-linked instruments, such as convertible bonds, were becoming a more popular means of capital raising for Hong Kong and Asian companies because it was cheap and involved minimal dilution of shares.
According to Dealogic, Asian companies (excluding Japan) raised US$19.81 billion through 281 equity-linked issues last year, representing a 13.9 per cent increase in volume and a 14.69 per cent rise in the number of issues compared with 2003.
JP Morgan was ranked No1 in the Asia equity-linked league table, handling 16 deals worth US$2.92 billion - a 15 per cent share of the market. Of those deals, six were issued by Hong Kong firms accounting for US$2.33 billion.
According to Ms Leung, a majority of the deals arranged by the bank last year were for first-time issuers.
A total of 17 Hong Kong and mainland firms issued equity-linked products last year, tapping a total of US$4.63 billion. This compared with a mere US$1.65 billion raised by 11 issues in 2003.
In 2003, Asia companies raised US$17.39 billion through 245 equity-linked issues, of which 23 were issued by Hong Kong and mainland firms totalling US$1.71 billion in volume.
'A year ago, people weren't even thinking about raising money because they were not thinking about expansion or acquisitions,' Ms Leung said.
'But as market sentiment improves, more and more companies are looking to expand and are considering raising money, even though they haven't yet identified acquisition targets. The mentality has clearly changed.'
Last week, Cheung Kong (Holdings) raised $638 million through the issuance of a 21/2-year equity-linked note to help the company replenish its land bank.
Cheung Kong executive director Edmund Ip said the interest cost for the note was lower than ordinary syndicated bank loans.
Ms Leung expects the trend to continue this year, with more companies and a bigger volume of equity-linked issues.
However, in light of the widely expected interest-rate rises in the second half of the year, she advises companies to take action in the first half.
'Our house view expects the Fed funds rate to reach 4.25 per cent by the end of the year, which is nearly double from today,' she said.
'It is always better to go into the market earlier rather than later.'
