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- SBI Holdings’ exposure to Ripple’s XRP significantly boosts its performance.
- Convertible bond market sees a resurgence, offering investors diverse opportunities.
SBI and the Ripple Effect
SBI Holdings, a leading Japanese financial services company, made headlines in the convertible bond market when it launched a dual-tranche ¥40 billion convertible bonds (CBs) in August 2017. These bonds were aimed at refinancing an existing CB, funding buybacks, and opening up new investment avenues.
BOOOOOOOOOOOOOOOOOM!!!!
EDMOND DE ROTHSCHILD FUND mentioned #XRP and SBI from JAPAN. SBI will go live with XRP this month! 💥🔥
Document: https://t.co/gtE5TjiWCG pic.twitter.com/XlvanG2sqm
— JackTheRippler ©️ (@RippleXrpie) September 11, 2023
At the heart of SBI’s impressive performance is its 8.7% stake in Ripple’s XRP. During a time when the equity of the company surged by over 60%, largely driven by the global enthusiasm surrounding cryptocurrencies, this stake proved invaluable. SBI’s CBs further benefited from this, showcasing a strong performance.
However, SBI’s association with Ripple is just a fragment of the broader narrative. The convertible bond market has witnessed a resurgence, characterized by an influx of smaller issues, primarily from the US, with issuance volume swelling by 28% year-on-year.
The Convertible Bond Renaissance
The first quarter of 2018 recorded a ten-year high in primary activity in the convertible bond market. A whopping 67 issues were launched, amassing a total of $26.8 billion. Factors like the rising interest rate expectations and renewed optimism in equity markets have revitalized this asset class.
SBI wasn’t the only company reaping benefits from this trend. Notable contributions also came from the US payments provider, Square Inc, which issued a $440 million, 5-year CB to fund various growth initiatives, resulting in a contribution of +47 basis points (bps).
Not all was rosy, though. Steinhoff, a significant investment grade rated issuer, faced a downturn in December 2017 due to accounting irregularities. The furniture retailer’s CBs lost substantial value, affecting the market’s overall sentiment. Yet, the diversity and strength of the convertible bond market ensured a steady recovery.
Looking Ahead
The present environment hints at continued growth for the convertible bond market. Several factors contribute to this optimism:
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- Equity Markets at their Peak: CFOs appear keen on capitalizing on the current high equity returns.
- Rising Interest Rates: As rates ascend, convertible bonds become more appealing to companies, helping them reduce financing costs.
- US Tax Plan: The recent US tax overhaul has made convertible bonds even more attractive, especially when compared to traditional bonds.
- Increased M&A Activity: Lower corporate tax rates and simpler overseas cash repatriation procedures might spur M&A activities, leading to more deal-related issuance.
- Global Capex Rise: Historically, convertible bonds were the go-to option for financing capital expenditure (capex). With an expected global increase in capex, driven by the aim to achieve higher returns against rising rates, convertible bonds could see a further boost.
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This bright outlook, combined with the recent performance of major players like SBI Holdings and their ties to influential cryptocurrencies like Ripple, suggests that the convertible bond market is gearing up for exciting times ahead.
