Salomon expects 2003 issuance to rise by around one-third to $70-$80 billion

By Ronda Fears

Nashville, Dec. 4 - Salomon Smith Barney foresees 2003 convertible issuance to gain by roughly one-third to some $70 billion to $80 billion from its expected 2002 tally of about $55 billion.

If the 2003 estimate is reached, it would put the year where Salomon had originally estimated issuance would reach for 2002, which did not come to pass as the capital markets went into hibernation while stocks took a beating.

On the heels of a late October rally, a baker's dozen convertibles were issued last month, Salomon said. The number of deals and $3.7 billion in proceeds were the best month for issuance since April.

"Full year issuance will, we believe, wind up near the middle of our $50 billion-$60 billion projected range. We're assuming that the month of December looks similar to November in terms of issuance," said Salomon convertible analyst Stuart Novick said in a report Wednesday.

"Our first stab at estimated convertible issuance for 2003 yields a number in the $70 billion-$80 billion bracket."

The varied mix of issuing companies and convertible structures that came in November bode well for the market heading into 2003, he said.

"While the primary driver of new convert issuance is clearly equity market performance, the recent rally in stocks has been broad-based enough to entice companies in a wide swath of sectors to issue convertibles," Novick said.

"The strong showing by tech and communications stocks in particular bodes well for convertible issuance, we believe. The strong after market performance of the two new tech/telecom company converts [Skyworks Solutions Inc. and Advanced Micro Devices Inc.] was particularly noteworthy given the sectors' recent drought and the likely pent up demand of both issuers and investors."

Tech and telecom, which at one point in the 1999-2001 bull run comprised over two-thirds of the convertible market by capitalization, now makes up only 28% of the overall market cap. That implies that there's room for expansion, he said.

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