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The last major convertible bond issue in Canada was the $1-billion financing of BlackBerry Ltd. led by Prem Watsa’s Fairfax Financial.

Aaron Harris/Reuters

Convertible bond offerings are being sold at the fastest pace in five years, but although Canada is making gains, proceeds lag the global average.

These bonds, which are eligible to be turned into equity if certain conditions are met, have grown in popularity as stock markets have continued to rise. Convertible debt issuance around the world is up 60 per cent from this time last year, pushing the tally to more than $91-billion (U.S.) – its highest point year-to-date since 2008, according to figures from Thomson Reuters released on Friday.

Several mega-offerings have contributed to these gains, including Shenzhen, China-based life and property insurer Ping An Insurance Group Co.'s $4.3-billion issue this month, which brought China's score to an all-time-high of $12.8-billion this year, according to the report.

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The U.S. has also been churning out convertibles with proceeds up 82.5 per cent over the same period in 2012, to the highest point since before the global financial crisis. Investors in convertible notes are counting on a rise in the underlying stock price of the company. If it surpasses a level agreed upon in the terms of the notes, the debt can be swapped for equity (and potentially sold at a profit). The S&P 500 is up more than 26 per cent so far this year; while investors are waiting for their notes to convert, they can safely collect some income in an otherwise low-interest rate environment.

Companies such as Yahoo Inc. are attracted to the low interest rates they must pay on convertibles, the Wall Street Journal reports. Yahoo did one major U.S. deal that helped raise the global tally. The company put together a $1.3-billion convert offering this week. It also pledged to repurchase $5-billion in shares at that time.

Convertible issuance in Canada lags behind both the U.S. and global average, with proceeds up 40 per cent from last year, at levels below 2011. That could be tied to the fact that markets in Canada haven't been as hot either, with the S&P TSX up less than 11 per cent so far this year.

The last major convertible debt news in Canada was the $1-billion financing of BlackBerry Ltd. that Fairfax Financial Holdings and other investors agreed to invest in the ailing smartphone maker by taking on the debt at a 6-per-cent interest rate, which can be converted to shares at a price of $10, within seven years.

But the Thomson Reuters numbers only account for fully underwritten convertible bond offerings in Canada this year. The largest of those is a $310-million offering from Quebecor in a private placement involving Caisse de dépôt et placement du Québec.

Real estate investment trusts were a major contributor to the total convert issuance in Canada, making up 14 of the 35 offerings. But the financial sector has been the biggest contributor to the worldwide rally, accounting for 30 per cent of volumes this year. In Canada, there were just two issues in this category.

Technology stocks have been on a tear around the world, and this sector made up another 18 per cent of global volumes. Materials came in at 10 per cent.

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JPMorgan Chase & Co. leads the investment banks in the convertible debt category, with more than 13 per cent of the bookrunner market share.

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