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Convertible Financing at record low yield - Macro trends - ESG linked convertibles

Convertible Financing at record low yield – Macro trends – ESG linked convertibles

UniCredit's 3rd Convertible Bond Conference provides the full range of insights


UniCredit's 3rd Convertible Bond Conference took place on 1 July 2021, attracting huge interest from investors and issuers alike,  allowing participants to deep dive into their investment and business strategies.


Convertible Bonds is an asset class and business we at UniCredit have been present in for a very long time and we are glad to see issuance so strong, both on a Global but also on a European level. Following a very active year for convertible bonds in 2020 with a total volume of approx. EUR 26 bn in EMEA, 2021 also started off with a very strong issuance in particular in the first quarter and is on a good path to reach similar issuance volume levels by year end.


With rates where they are in Europe and with share prices back to near highs in many cases, Europe offers issuers the opportunity to raise convertible financing at record low yields while at the same time the opportunity to monetize their share rallies with a healthy premium added on top.


All of this set the scene for a series of fruitful discussions and meetings between issuers and investors during the virtual conference.

Furthermore, the agenda was complemented by a Macro-Outlook of our Chief European Economist & Head of Macro Research, Marco Valli, sharing his key messages:

  • Large supply bottlenecks and accelerating demand as economies reopen are fuelling an increase in global inflation pressure. This shock is likely to prove temporary.
  • We see some risk of overheating in the US, reflecting massive and front-loaded fiscal stimulus, but growth will slow into 2022 and a lasting inflation outbreak seems unlikely. The eurozone will cope with spare capacity for years and underlying inflation is expected to remain weak.
  • The Fed's dot-plot has turned more hawkish, but the doves seem to remain in control. We expect tapering next year and gradual rate hikes starting in 2H23. In the eurozone, the phasing-out of the PEPP will pose challenges to the ECB. Amid persistently below-target inflation, a smooth transition from PEPP would require enhanced QE flexibility and additional substantial purchases.
  • The federal election to be held in September is likely to confirm Germany's pro-European course.

ESG has become also one of the major trends in the ECM and equity-linked fields, as passionately discussed in a lively, high caliber panel discussion on "ESG Linked Convertibles: navigating the landscape as ESG becomes inevitable" with, amongst others, the following take-aways:

  • Incorporating ESG in capital allocation for convertible bonds is expected to yield positive returns in the long run but only time will tell how quickly and how broadly investors will embrace ESG factors in their investment policies.
  • ESG research is establishing a new way to address risk by incorporating non-financial topics that potentially have financial implications.
  • Independent and "in-house" ESG research is required to overcome the lack of comparability and historical approach in third party ESG scores. This leads to the development by ESG-focused investors of proprietary methodologies to address sustainability-relevant factors when making investment decisions.
  • All three pillars of ESG (Environmental, Social and Governance) play a role in assessing sustainability-relevant risks. However, historically speaking and particularly for convertible bonds, Governance has been identified as a key area where weaknesses can be identified than lead to poor price performance.
  • One of the major challenges ESG-focused asset managers are facing is the absence of transparent and comparable data with respect to ESG KPIs and use of proceeds. The market's ability to price sustainability-related risks is dependent on transparency and improved standards, that should be harmonized not only at a regional level but at a global level. Only through this material change the market can effectively assess and price ESG factors and risks going forward.


At UniCredit, our goal is to be the partner of choice across the corporate issuance product spectrum, including convertibles and equity-linked products: in 2020 we completed 15 Equity-Linked transactions resulting into a #7 EMEA equity-linked league table position, a #2 position for Italian equity-linked new issues and #3 for German Equity-Linked new issues. In equity-linked specifically, UniCredit has a dedicated in-house value chain with a significant transaction record in European new issues and with best-in-class expertise in the secondary market (ranked #5 by Greenwich in 2020 and being in the top 5 now since 2017).


We'd like to thank all our clients for their trust and daily cooperation and are looking forward to continuing our dialogue!


Source: Dealogic Cortex, 2020 YTD (1 Jan - 31 Dec), 4 Jan 2021