By Patturaja Murugaboopathy

Sept 29 (Reuters) - Global companies are ramping up convertible bond issuance in 2025, taking advantage of strong equity markets and investor appetite for hybrid debt, with tech and growth firms raising funds to avoid high borrowing costs.

According to Dealogic data, companies have raised a total of $81.2 billion in convertible bonds so far this year, the most in five years.

"Convertibles provide growth capital for growth companies, aligning well with today's market — particularly AI-related issuers," said Joe Wysocki, portfolio manager at Calamos Investments.

"We also expect demand for convertibles to accelerate as they offer investors a unique way to manage risk by participating in equity upside potential with less than equity downside risk," he said.

CONVERTIBLES BEING USED FOR REFINANCING AND M&A

The SPDR FTSE Global Convertible Bond UCITS ETF ZPRC.DE is up nearly 7% year-to-date, underperforming the MSCI All Country World Index's .MIWD00000PUS 16.1% gain, but faring far better than the SPDR Bloomberg Global Aggregate Bond UCITS ETF SYBZ.DE, which is down 7.13%.

With the U.S. Federal Reserve expected to continue cutting rates, analysts say convertibles are well positioned, offering lower borrowing costs than high-yield debt and potential equity upside if markets rally.

Many companies are turning to convertibles to refinance maturing obligations, with about $71 billion in convertible bonds coming due by end-2026, according to a Morgan Stanley report.

At the same time, Eric Croak, president at Croak Capital, said some deals were also funding small-scale mergers and acquisitions.

“M&A is slowly starting to re-emerge, primarily tuck-in deals. I mean small, $50 million to $200 million acquisitions that augment technology, distribution, and customer access,” he said. “Firms want dry powder without locking into long-term debt.”

Recent deals underline the momentum. Alibaba 9988.HK said earlier this month it planned to raise $3.2 billion via a zero-coupon convertible bond to fund international expansion and grow its cloud business.

Nebius Group NBIS.O announced a $3 billion fundraising, including convertible notes, to fund growth in its AI cloud business, following a $17.4 billion partnership with Microsoft MSFT.O.

(Reporting By Patturaja Murugaboopathy in Bengaluru. Editing by Chuck Mikolajczak, Lance Tupper and Mark Potter)

((patturaja.muruga@thomsonreuters.com;))