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Fusion delight

23 April 2020 By Karen Kwok

Just Eat Takeaway.com’s latest hot dish is a convertible bond. The Dutch food delivery group sold 300 million euros of the funky debt that converts into equity, capitalising on demand for the product amid volatile markets. For bankers, investors and the companies that issue them, the feast isn’t likely to end soon.

Just Eat’s convertible bond was part of a bigger meal, which also included a 400 million euro share placement. Tacking on the convertible allowed the group led by Chief Executive Jitse Groen to reduce shareholders’ immediate dilution, and lock in cheap funding. The bonds can be converted into shares if Just Eat’s share price rises to 121.80 euros, 40% above the level when the debt was issued. Until then, investors will receive a coupon of 1.25%.

Convertibles are often used by fast-growing or acquisitive companies, like Just Eat. Amid the crisis, they are also being used as a source of emergency funds. The bonds are cheaper than ordinary debt, because they include the option to buy shares if the stock rises. In volatile markets, that option is worth more to investors, resulting in cheaper funding costs. Other companies to issue them include Italy’s payments company Nexi and cruise operator Carnival.

The securities are also proving resilient. The conversion option gives investors the upside of equity when the company does well. But the bonds are also less volatile than shares when markets tank, thanks to the guaranteed coupon and typically short maturities. So far this year, the Refinitiv Global Focus Convertible Bonds index has fallen around 4.8%, compared with the MSCI World index’s 14.64% slump. That explains why, whereas the deals were traditionally placed with arbitrageurs at hedge funds, they are now mostly gobbled up by traditional fund managers looking for stable returns and diversification.

Global sales of convertibles hit $126 billion last year, the highest amount since 2008. So far this year, volumes are up 9% in Europe and staggering 82% in the United States. With more and more companies likely to take advantage of a hot market, the challenge for investors will be to avoid being too greedy.


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