The company is revisiting the market after an eight year absence, but SG has retained the bookrunner slot it held back then. The joint bookrunner in 2002 was broker ABN AMRO Rothschild and today the syndicate change simply reflects that JPMC is now broker.

The addition of another UK deal to SG’s roster since the EMEA CB market reopened means that seven out of 16 deals have now come from outside the bank’s home market of France. For BNP Paribas the numbers show similar progress with 11 out of 21 deals for non-French companies.

The convertible bond market is seen as an easier arena for the French banks to expand into compared to straight equity, and with both banks nearing 50% of their business outside the home market the numbers are beginning to back this view.

Competition is therefore fierce once again in Europe with Morgan Stanley, JP Morgan, Credit Suisse, UBS, SG, BNP Paribas, Goldman Sachs and possibly Deutsche Bank all realistically pushing for the top of the league table. And with the average deal size comfortably below US$500m, a single jumbo deal could be the decider.

Having acquired Tommy Hilfiger in a 2006 LBO, Apax weighed a number of options regarding its exit plan. With Credit Suisse as its lead financial advisor, a near-term recapitalisation in preparation for an eventual IPO in the second half of 2010 was under consideration but Philips-Van Heusen came through with the most compelling proposal.

The deal, a mix of €1.92bn in cash and €400m in Philips-Van Heusen equity, was orchestrated with the help of financial advisors Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch and RBC Capital Markets.

Roughly half of the equity financing will be supplied through a public offering of Philips-Van Heusen common stock plus US$200m in perpetual preferred stock. These securities pay no coupon and convert into roughly 6% of pro-forma shares outstanding at US$47.74.

From an underwriting perspective the deal is net positive as a potentially tricky IPO of Tommy Hilfiger has been replaced by two easier public trades – a US$200m PVH follow-on and a US$200m convertible bond.

The only major change is that Credit Suisse loses the potentially lucrative IPO mandate while league table credit for the smaller follow-on and convertible will be split amongst multiple bookrunners. As with Prudential and AIA, the trade sale is a far better result for ECM bankers than yet another secondary sale to another sponsor.

The move to proceed would be significant as the Nakheel Development debacle was said at the time to have severely damaged the chance of any new issues.

But seeing as NBAD was part of the Abu Dhabi injection into Dubai, investors may still view the bank as a solid offering. CB funds are also familiar with the bank that last issued US$545m of LT2 CBs in February 2008.

The Middle East was once seen as a growth market in CB terms, particularly for Barclays Capital, which under Doug Decker built significant market share when the region first opened.

Yet issuance stalled. CBs were often very bond-like and were sold on the basis of high coupons – or in the case of NBAD’s LT2 as a US dollar de-pegging play – but they attracted a good audience.

So why did they die and could NBAD prompt a revival?

It is therefore interesting to note that Morgan Stanley this morning launched a £500m CB deal for UK software group Autonomy and asked UBS along for the ride as co-books.

The one convertible of last week also saw Morgan Stanley and UBS working together, as joint books, so perhaps the split has had the opposite effect of what was feared and allowed each to double their fee pot.

Versus a price on the underlying in pre-market trading of US$17.16, down 4%, the offering is trending below the re-offer level. The lead suggested the overnight format gave investors leverage in pricing negotiations.

The security has some unusual features and, some suggested, presented problems in modelling. Versus a credit spread of L+800bp and implied vol of 24, the bond modelled out about two points cheap versus the reference price, dropping to 99 at pre-open levels, suggested one trader.

Specifically, the Annaly convertible offers investor protection against any and all dividends above US$0.00. The mortgage REIT paid a dividend of 75 cents in the fourth quarter, implying an annual yield of 16.8% at the reference price. Holders of the convertible receive the common dividends.

As a mortgage REIT, Annaly is obligated to pass through the bulk of earnings to shareholders in the form of a dividend, giving it little control over the rate of the payout. With the current yield-curve steep, the REIT will be able to leverage the new capital at short-term rates and invest in longer-dated MBS.

As the Fed moves to tighten lending rates, however, the environment may not be as favourable. Annaly is using proceeds to purchase MBS and for general corporate purposes.

If Fed policy remains accomodative, potentially leading to further steepening of the yield curve, the convertible could become prohibitively expensive because of higher dividend payouts. To protect itself against such a scenario, the convertible is mandatorily if the underlying exceeds 130% of the conversion price for 10 of 15 consecutive trading days, with a coupon make-whole for any remaining coupons.

The bonds, which will convert into London-listed GDRs, are offered with a 5%-5.5% coupon and a premium of 27.5%-32.5%. The reference price will be the pricing on the concurrent placing. The equity appears to be just the banks selling the delta, which is seen at 50%-55%.

As part of the offer the company will also complete a capital increase of 86.2m shares. The controlling shareholder will exercise its pre-emptive right to the majority of the deal. The GDRs underlining the bonds are being lent by the controlling shareholder TMK Steel and the capital increase will be sized to replace these GDRs.

Morgan Stanley, UBS and VTB are joint books.

Analysts at Nomura suggested the leads’ credit spread of 600bp and borrow of 125bp gives a theoretical valuation of 109%-112.1%. Their own 700bp spread and 175bp borrow cost still sees the bonds valued at 106.4% on worst terms.

The concern is that more banks are chasing convertible bond business and are looking at it as an extension of their debt business. The issue is that some new entrants are apparently bidding fees more appropriate to straight debt (as low as 40bp is reported) rather than the 200bp typically seen on the sub-US$1bn deals that have become standard.

Morgan Stanley and BNP Paribas dominated issuance in EMEA last year yet had league table credit (where deal volume is split equally across bookrunners) of US$4.9bn and US$4.1bn, respectively.

The back of an envelope calculation shows at an average fee of 200bp Morgan Stanley would have earned fees of US$98m. But just US$19.6m at 40bp.

Clearly fees vary depending on the size of the deal, structuring involved and relationship with the issuer, but some bankers are worrying about how to maintain CB teams if fees do slide.

The suggestion of G7 pressure on the pair to ensure faith in sovereign credits remains is interesting, but the redemption of the bonds does not mean we are back in the situation before the standstill in late November. 

The investors getting paid today are not the ones that were holding the bonds two weeks earlier.

Many fund managers, once the standstill was ann0unced, made the rational decision to sell as soon as possible and realise what they could. They left it to those more used to restructurings to take a punt on the likely outcome. It is these distressed investors that today are banking a quick profit.

So come the next sovereign or quasi-sovereign issue from Dubai, the investors approached to buy may still have made significant losses on ‘Nakhell’.

One of the reasons cited for the failure was Nakheel’s trading – which seems a stretch considering the deal only launched this morning.

A more obvious issue was the launch terms and stingy coupon offered for a risky credit. The leads suggested a credit assumption of 800bp, though conceded some clients would use 1000bp as their benchmark.

Yet of the few internationals to bother pricing up the bonds, Nomura used 1500bp. Unsurprisingly the gap between the two assumptions was crucial. Nomura valued the bonds at just 95.5% on best terms. A CB banker at another firm said the 4.875% coupon offered at the top of the range was nonsense considering the credit.

More impressively the leads, ABG Sundall Collier and First Securities, claimed to have a book at 5.25% with a 22.5% premium. The company decided that was too expensive and walked away.

Tough luck for the banks. Some clients are never happy. You are asked to deliver the impossible, you achieve the improbable and it still isn’t enough.

Yet the launch of a convertible bond today has been welcomed with the stock jumping 8.3% by 10.30am. ITV is a name where the balance sheet has been an issue so issuing £120m of debt through seven-year paper has met with a good response.

Theoretical valuations of 103%-108.5% suggest investors should also respond well.

Launch terms:

£120m senior due 2016

Coupon: 4%-4.75%

Premium: 32%-37%

HNC2, then subject to a 200% trigger. Trigger drops to 130% in year four. Full div protection. Issuer rated B+ negative