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In a virtual roundtable Jo Thornhill and Harry Wallop put questions to issuers about funding strategies and changing conditions in the Japanese Euro-MTN market. Q. How did the crisis in Asia affect issuance in Japan off your Euro-MTN facility in 1998? Motokawa: "Many Japanese companies were downgraded by the US agencies last year. And Toshiba Corporation was no exception. Having the ratings downgrade made issuance very difficult for Toshiba in 1998. But we were helped by the fact that the Japanese investors knew our name and our activity was good. Although, we had to supply lots of information. European investors were much more cautious of our credit. Because of the problems Japanese banks experienced last year Japanese companies had to pay a premium to raise funds in the Euro-MTN market, for example we paid plus 50 basis points, which was a severe increase." Shimoyama: "Many Japanese issuers found it more expensive to raise funds off their MTN programmes. During the crisis we decided to limit new issues to avoid such costs. That is why we were able to minimize the effect of the crisis on our funding costs while the total amount issued off the programme obviously decreased during that period." Akerlind: "Strangely, the volume coming from Japan has been big, both this year and last. However, the investor base was different. Demand from the retail sector was lower in 1998. Though recently we have seen this turning again. The number of regional institutional investors buying structured products increased last year." McDougall: "I agree there were definitely less retail investors in the market. Abbey has not issued off its Japanese retail programme for some time now. And there was definitely less cash in the market. The fall-off could have been greater but people started to become credit conscious and investors appeared to be comfortable with Abbey's name so we escaped reasonably lightly. This year, we are raising funds in Japan at the same level as last year but we have seen a drop-off in volume. We are probably down to 70last year's volume." Ro: "Our Eurobond was due for refinancing in March 1999 and so we set up the Euro-MTN programme to replace this. The Euro-MTN was much more convenient and flexible than our domestic Eurobond, which was not really cost effective when issue size is small." A. How much of your funding is achieved in Japan? Akerlind: "In 1998, 55% of our total issuance was into Japan. In 1999 this will increase to around 75%. Confidence is definitely growing again, particularly the volume from the retail sector. There is more demand now and for a wider range of structures." Ro: "All our notes so far have been bought by Japanese investors. As a single-A rated issuer, European investors are cautious about taking our paper. It is much easier for us to sell into Japan at the moment." Shimoyama: "Almost all our paper is sold to Japanese investors. However, both this year and last year some European investors bought Mitsubishi Euro-MTNs. Before the crisis we were planning to issue more and more into Europe but we had to postpone that. However, from now on we will be planning to increase issuance into Europe." McDougall: "It's 50%. But we only use the programme for small private placements. We try not to chew up the programme by issuing standalone bonds off it." Q. Is investor confidence in Japan growing in 1999? McDougall: "I think so. It has definitely got busier as the year has gone on. And July and August have been very good for us." Motokawa: "The injection of cash from public funds from the Japanese government has aided the improvement of the situation. I think last year was rock bottom for the Japanese economy, but now we will see recovery." Ro: "The Euro-MTN market is a convenient and efficient, well-developed market already but I am sure it is set to grow going forward. Investor confidence in Japan is certainly growing again." Shimoyama: "In the short-term investor confidence is growing. But one never knows what will happen by the end of the year. You do not know what the catalyst is that could set off another crisis. The situation is like a coin with opportunity and panic on different sides. Which way will it turn? So I think confidence could decrease in the long-term, but I doubt as seriously as it did during the crisis." Q. How have structures and maturities that Japanese investors look at changed over the last few years? Akerlind: "We've seen an increase in equity-linked, Nikkei knock-in structures and inverse convertibles. But by far the most active is the burmudan callable powered reverse dual currency structure. With this note small institutional investors have an opportunity to take risk and achieve a good coupon, and get 100% redemption when the note is called." Ro: "We do not have high financing needs this year. The notes Fuji Xerox has issued have all been yen-denominated and of a simple structure." Motokawa: "Issuance is getting much more complicated, we are seeing increasingly structured trades such as index-linked notes and other options. It is cheaper to do structured trades and Toshiba always has a swap contract anyway. Japanese interest rates are very low so investors expect that in the long-term they must rise again. At the moment 10-year callable options are really popular. However, we prefer shorter maturities in the one- to five-year category." McDougall: "I don't think they have changed much. Investors have backed off from foreign exchange risk a bit recently, and are perhaps a little more conservative than before. Callables are particularly popular at the moment." Q. Have you been encouraged to look at more complex structures since interest rates in Japan are so low? Akerlind: "In the structured market we still aren't seeing many domestic Japanese borrowers. Non-Japanese issuers are more likely to do the structured trades. Japanese issuers are hesitant about the swap exposure and in order to execute these trades you have to have the knowledge and expertise as well as flexibility. They don't have the history of structured issuance. Ro: "We don't care what final form of note investors take, but our preference as an issuer is a simple type. We don't look for complicated structures." McDougall: "We've never had a problem with structures as long as they are legal and do not upset either the rating agencies or our investor base." Q. Do you think competition is increasing among borrowers in the Japanese Euro-MTN market? Akerlind: "We see more competition in Japan now than we used to. There are more issuers, both Japanese and non-Japanese looking for investors there. But SEK has been issuing into Japan for over 20 years. We have established a name and good reputation there and have the relationships in place." Ro: "As most of our investors are Japanese it hasn't been a great problem. But if we wanted to find European investors the competition would be much stronger between Japanese and non-Japanese issuers. Because currently European investors are less confident about investing in Asian companies, including Japanese. Fuji Xerox's credit rating would need to be higher and market conditions would have to be more favourable before these investors would probably buy our paper." Q. Do you think foreign borrowers are becoming more successful at attracting Japanese investors? Shimoyama: "It depends how you define successful. Now spreads are tight in Japan foreign issuers can seem generous in the coupons they offer to investors." McDougall: "Not really. We all lost out in Japan to a certain extent when during the crisis Japanese issuers' levels were very wide." Q. What have been the lasting effects of the economic crisis for the Japanese market? Motokawa: "Last year it was difficult for Toshiba to find investors. In 1999, so far, I think it has been an issuer driven market. Japanese investors have the cash, especially after the government injection of funds, but the sentiment among Japanese companies is weak, we are more cautious and watchful with our funding since the crisis." Akerlind: "It's a matter of credit worthiness. If an investor is buying a particular structure and is nervous about the risk it will want an issuer with a good credit rating. Many Japanese borrowers have had their ratings downgraded, so investors have been wary of buying structured paper from them." Shimoyama: "Last year's crisis had a huge impact. But I think the economy has reached rock bottom and is starting to recover. Japanese corporates need to restructure more and more. The mergers that are starting in the banking sector are a good thing for the Japanese macro-economy. Other sectors should follow the lead banks have taken in restructuring." McDougall: "The biggest and largest effect is that there is now more credit awareness, but that applies globally. Investors want to develop portfolios with a wide range of credits from around the world. At the end of the day, you have to look after your investors by educating them."

Brazil is believed to be planning to issue a jumbo 40 year non-call 15 exchange bond of up to $5bn as early as today (Friday). Bankers were yesterday suggesting that the sovereign had mandated Chase Securities and Goldman Sachs to launch an exchange issue, and that the deal could be done today if the US July payroll numbers due out in the morning are favourably received.

A record $11.5bn three tranche offering from Fannie Mae dominated the primary market this week as fixed rate debt markets slipped into their customary August torpor. The transaction, which targeted two, 10 and 30 year maturities, is the largest non-government corporate or agency bond issue in dollars and the second largest non-government security in any currency, behind the $14.6bn Deutsche Telekom deal launched in June.

The UK and Irish building societies have historically enjoyed cheap funding from their domestic investor base, not least from their own sector. But the bubble is about to burst. The rapid expansion of a credit market in Europe is sending UK investors running to buy cheaper paper from issuers of the same rating on the continent. Dealers say building societies will have to reassess funding strategies in order to compete. "The market is growing up and the good times could be over for building societies", says one dealer. He adds: "The incestuous nature of the sector in funding itself may continue short-term, but I question how much longer it can go on. UK building societies' levels are no longer looking attractive compared to their peers in Europe. Over the next few months building societies may find their levels forced to come in line." But building societies are highly sophisticated issuers and argue they have been quick to respond to changing market dynamics. Nationwide Building Society was the most active borrower in the sector last year. Kelvin Yarker, capital markets dealer, at Nationwide, says: "We acknowlege that in order to move away from our traditional investor base it will cost more, and we are prepared for that. The only danger is you move your levels and the same people buy the paper, then you haven't diversified at all." Yorkshire Building Society (YBS) has issued in a wide variety of currencies since 1995, including yen and Deutschmarks. But all its issues in 1999 off its £

Market report: Compiled by Frank Hracs

Avinder Bindra, managing director and head of global loan products for Asia, Japan and Australia at Citibank will leave the company at the end of September. "I've been at the bank a long time, but I've decided to leave and look at other opportunities," said Bindra. The bank has asked Bindra to stay for two months, after which he said he would take a few months off and review his options. Bindra said that he had some internet related opportunities amongst his choices, but declined to elaborate.

Commerzbank announced this week that it will enter the principal finance market through an unusual collaboration with an independent investment group. The bank will cooperate with Patron Capital Ltd, a UK based investment adviser set up in early 1999 by Keith Breslauer, a former Lehman Brothers principal finance specialist. Commerzbank is believed to have made principal finance style investments in a piecemeal way, but now wishes to expand its activity.

In MTNWeek's first dealer survey post-Emu, all eyes are focused on Europe. And the outlook is positive. There is no better time for market growth, diversification, new issuers and investors, according to the results. Any concerns about the euro have rapidly diminished with issuance in the new currency ever increasing. Non-Japan Asia is marked by its absence in the survey. Japan struggles to make an impact amidst the dominant theme of Euromarket expansion. Monetary union has certainly changed the face of the Euro-MTN world. ?Currencies The euro has been voted the main rising currency post-Emu, as predicted in MTNWeek's 1998 dealer survey. It is ahead of its major rivals yen, sterling and dollar, by a considerable margin, with 32.39the total votes. Eastern European currencies are also predicted to rise in favour, with zloty receiving 5.63 nd Czech koruna getting 4.22%votes. Though drachma is in evidence, it has failed to maintain its popularity of last year, gaining 4.22%the vote, compared to the 7.1% it achieved in 1998. Diminishing opportunities for convergence plays is largely to blame. The rand, mentioned as a strong contender in 1998, failed to get a single mention in this year's survey. Scandinavian currencies still look strong with Swedish krona in the top eight. ?Structures A varied bag of structures was picked out by dealers including Eonia-, credit-linked and commodity-linked trades in all currencies. However, the CMS-linked structure proved the most popular of the lot, ranking highest in the poll with 15.87the total votes. Investors gain flexibility in linking notes to the constant maturity swap rate. The Federal Reserve's decision to keep a tighter check on interest rates, is one reason given to explain investors' preference for CMS floaters. There is now uncertainty about where interest rates will go. Credit-linked structures are proving slow to catch on despite being predicted in last year's survey to be the dominant choice of investors in the coming year. This structure is likely to see more gradual growth. Equity-linked and index-linked structures remain popular. And favoured currency denominations are euros, yen and dollars, in that order of preference. The survey sees a more balanced split between vanilla and structured trades than last year, with an increase in vanilla products from 31.65% to 41.7% and a fall in structured deals from 68.35% to 58.3%. ?Issuers Unlike last year's survey, no particular borrower stood out in the poll for most exciting issuer. Dealers all seem to have their particular favourites when it comes to this category. Svensk Exportkredit (SEK) has the glory of the top position but by a narrow margin. It received 15% of the total votes but is closely followed by Republic of Italy and BAT international Finance. Italy was tipped for great things when it signed its programme in July last year and it is looking like it won't disappoint. SEK also stands above the bunch for innovation. It was voted as issuer most responsive to structure ideas by 13.46% of dealers. Unsurprisingly the banking sector was prominent in the innovative issuers category with many being named. Abbey National, Bacob Bank, Bayerische Landesbank, De Nationale Investeringsbank (DNIB), Rabobank and Halifax all got a mention along with those dealers who voted for their own houses. Imperial Chemical Industries which received the accolade in 1998, is notably absent from the list. The issuer has chosen more recently to stick with safer fixed-rate structures. ?Growth regions Europe has, once again, come out as the strongest growth area with over 80% of the vote. Southern Europe held a significant proportion of this figure, with 29.73% of Europe's total. Emerging markets and Scandinavia had surprisingly little impact in the survey, though both were predicted to be growth areas in last year's survey. Non-Japan Asia is notably absent, in terms of growth regions, currencies and investors. Recovery in the area is proving to be slow. Japanese borrowers remain quiet with no dealer picking the country out as an area of potential growth. Single-A rated issuers are expected to be the most popular in 1999, closely followed by those rated triple-B. Some dealers suggest double-A rated issuers could find themselves left struggling to find a market as investors are increasingly prepared to expose themselves to credit risk in the search for higher yield. Since top rated borrowers are always in demand the worry is that these issuers will slip through the net. The corporate sector remains the number one choice for dealers as a growth area, scooping 50% of the total votes. Local governments, insurance companies, especially guaranteed investment contract-backed issuers, were also worthy of a mention. ?Impact of Emu The general consensus of dealers is that the impact of Emu is dramatic. The market looks set to expand with more European issuers signing programmes and the growth of a wider ranging, deeper investor base. One dealer says: "Emu is a catalyst for growth. We will increasingly see the acceptance of MTN documents as the platform for issuance." The market will become increasingly open, transparent and liquid. Most predict greater competition between borrowers as they fight for attention in a broader investor-driven market. Many dealers expressed relief that the euro will make it far easier to do swaps into other non-European currencies. Others think deal size will increase and more plain vanilla issuance will be seen as investors fear the euro will become more volatile in the future. ?Investors The largest expansion and broadest diversification of investors looks set to be in the European market. One dealer suggests the absence of Japanese funds could be a major reason for the focus on Europe. An increased credit focus in the market is also expected. Many dealers predict more investors will be prepared to take a risk on lower rated borrowers in an attempt to gain greater yield. Some of those polled expect 1999 will see greater institutional demand, with mutual funds featuring well. ?League Tables Whether dealers love them or loathe them MTN issuance league tables were considered important by 65% of issuers polled in last week's survey. This week, market players had the opportunity to define the benchmarks they think should be used in ranking themselves. However, the results prove that dealers just can't agree on a formula to best represent an MTN trade. Unfortunately, many dealers simply include or exclude the criteria that will put them at the top. The market is divided. Thirty-three per cent think no cap should be placed on the size of trades. Of the other two-thirds of dealers, who thought a ceiling was necessary, a majority of 44% believed MTNWeek's current $250 million ceiling was a good measure. Thirty-eight per cent believed the cap should be lower than $200 million. The inclusion of self-led deals, deals for financially repackaged issuers and those trades with a term of less than 365 days, caused yet more division among dealers. While over 73% of people polled believed self-led trades should be excluded, on the subject of SPVs and deals of less than 365 days, the votes were split almost 50/50. ?Impact of the year 2000 Most dealers seem to agree that the possibility of information technology problems at the close of 1999 is causing jitters among borrowers. The prediction is that most issuers will look to complete all their funding before the final quarter of the year. The result will be a dramatic slow down in the market and a lack of liquidity. One dealer explains that banks will also be looking to balance their books early, rather than at the close of the year to avoid any upheavals a millennium bug may cause. Almost 20% of dealers polled had no concerns and believed that the arrival of the year 2000 would have no effect on the MTN market. Most people recognised the issue but felt it was overrated and was more about perceptions than reality. One dealer says: "It is a self-fulfilling prophecy that the fourth quarter will be quiet. Opportunistic issuers should be rewarded."

The credit market has arrived. Or so say the dealers. MTNWeek polled more dealers than ever before in its fourth annual dealer survey and the overwhelming response was that 2000 will be the year of the triple-B European corporate. But these results reflect optimism on the part of dealers. Figures from MTNWare and remarks made by some dealers in other parts of the survey suggest that there is some way to go before investors become happy moving all the way down the credit curve. Currencies Euro tops the currency table, but only just (see table 1). Last year it received 18% of the vote than its nearest rival, dollar. One dealer sums up the frustration felt with the currency's poor performance: "The euro is supposed to be a reserve currency." This year it has taken a battering and it is not surprising that many dealers predict that yen will become the main currency for trading. Yen is also the currency of choice for many structures, especially CMS-linked notes, interest rate-linked notes and power reverse duals. The rising stars are Singapore and Hong Kong dollars, which have never before made an appearance in an MTNWeek dealer survey. Trading in these two currencies this year has already outstripped total issuance in 1999 (see MTNWeek, issue 180). One dealer predicts that the market will see more activity from south east Asian investors over the next 12 months. Both Scandinavian and central European currencies are predicted only modest growth. Zloty, which has become the eighth most popular currency of this year, is tipped to fall. Structures The MTN market has definitely become less focused on structures, with dealers saying that 56.68:f their business is plain vanilla (see fig 1). One leading MTN house says: "The biggest disappointment this year has been the drop-off in structured business." And another top-five player agrees: "There has not been enough structured business this year." Despite this, all dealers named structures that they think will take off in 2000. And CMS is back, winning 7.6% of the vote. The structure, which was the star of 1999, has had a quiet year, but it is back in favour. And it is only just beaten by the equity-linked notes that have dominated 2000. The plummet of the stock markets has taken the shine off equity-linked notes and these structures only manage a 10.1% share of the vote. Lightly structured notes are predicted to be the mainstay of business with callables receiving 13.9% of the vote. Credit-linked notes, which were the top structure in the 1998 survey, pick up only 0.63% of the dealers' votes. But vanilla trades, particularly FRNs, are predicted to dominate the market in the next 12 months. Floaters pick up 17% of the vote. One dealer voices a common theme: "I predict a return to defensive structures." Ratchet notes, which act a little like a collared floater, are mentioned by a couple of dealers as a less risky trade that will be popular. Issuers SNS Bank easily tops the poll as the issuer which has made best use of its programme. Last year it did not receive any votes, but the Dutch bank, which signed its euro10 billion ($9.38 billion) Euro-MTN programme in 1998, has had a very successful year. It has issued 58 notes this year, raising $3.73 billion. Abbey National, whose appearance in MTNWeek's dealer surveys is a foregone conclusion, comes in second ahead of market leader SEK and the increasingly ubiquitous Islandsbanki FBA. Volvo has done well to be the only corporate to make it into the top six. The only other corporates mentioned were fellow car maker Renault, and Scottish & Newcastle, which has had a busy 2000. SEK, for the second year running, wins the issuer most responsive to structures poll. NIB Capital, which was fourth last year, comes in second along with fellow financials, BCEE, Irish Permanent, SNS Bank and Westland Utrecht. Indeed all the issuers voted for in this category were financials. Jackson National Life, which has proved to be the most active of all the gics, received votes in both categories, but not enough to make it into the tables. It will be pleased, however, not to have been mentioned in a new category: most difficult issuer. In response to issuers naming their most disappointing dealer in the issuers survey (see issue 181), traders were given their chance to name and shame. Diageo, which prides itself on its aggressive tactics, comes out as the most difficult issuer in the market. Vattenfall is the only other issuer to be named by more than one house. However 24 other issuers are nominated. Market veterans KfW and Republic of Italy receive a vote as well as corporates Ford and Compagnie de Saint-Gobain. "All telecoms" was the vote of one exasperated dealer. Growth areas The corporate sector of the Euro-MTN market has been given a huge vote of confidence by dealers. Eighty percent of houses believe that corporates are the next growth area. Yet though 26% of new signings this year have been corporates (compared to 22% in 1999) corporate issuance is a little sluggish. Last year 4.93% of non-syndicated debt was off private corporate Euro-MTN programmes, but this has only crept up to 5.19% this year. Dealers refuse to be pessimistic, however. "As the corporate sector takes off, more corporates will be happy about issuing regularly off their programmes rather than using them for one-off public deals," says one dealer. Not only do corporates get the thumbs up, so too do triple-B's. Last year only 28.57% of dealers believed that triple-B issuance would grow, but this year triple-B's get 51.52%of the vote. This is despite the fact that only 3.27% of non-syndicated debt has been issued by triple-B's in 2000. And Europe gets the most votes for growth region. Scandinavia, Greece, UK, France, Italy and eastern Europe all get a mention and overall Europe receives 79:f the votes. The US and non-Japan Asia only pick up 4ach and Japan receives 8 Investors Dealers were asked to predict how the investor base will change over the next 12 months. One says: "Investors are going to become more credit conscious and sophisticated in their search for yield premiums." But many dealers worry that an increasing focus on credit means a drop-off in structures. The dominance of plain vanilla was predicted by many houses. This is despite the fact that dealers report a slight increase in structured business. In 1999 41.7% of business was structured, according to the dealer survey. This year it is 43.32%. Dealers also think larger orders and more short-dated trades are future trends. But the vote is split as to whether European retail will become more prominent or not. However, dealers think that there will be a pick up in retail business from Japan. But regional banks in Japan are predicted to become less important. One house thinks that pension funds in Italy will be a driving force in the market. The market in 2000 It is perhaps not surprising that dealers had a good whine when they were asked what was the most disappointing aspect of the market this year. But the strength of their views was noticeable. "A quiet Easter," said one. Another was more forceful: "January and February were very, very quiet!" Other dealers pinpointed the problem. One dealer blamed "European investors," while another said, "If only European investors were buying more." The lack of both a thriving structured market and a credit market were highlighted as serious concerns. "Lots of public deals and poor mark-to-market performance has distracted investors from the private market," says a trader. And a Japanese house remarked on another important issue: "The decrease of investor demand in Japan due to the introduction of the mark-to-market accounting rule is disappointing." Though it was often investors who got the blame for the volatile market, issuers also came in for some criticism. "Issuers have been too opportunistic this year," says one dealer.

NEC Corporation has launched a jumbo convertible bond in the Japanese domestic market, raising ¥100bn of zero coupon funds with an issue that enjoyed tremendous demand from domestic and international investors. Daiwa SB Capital Markets was lead manager for the transaction and sold 30% of the paper into the Euromarket. The deal was more than 10 times covered, according to Koki Yakato, deputy general manager at Daiwa SBCM in Tokyo.

DEUTSCHE BANK has signaled its commitment to its M&A practice by taking Bob Cotter from Salomon Smith Barney in New York, Cotter was co-head of M&A at Salomon but will be head of Deutsche's global M&A practice. Deutsche Bank's M&A practice ranked 10th in the world last year in terms of announced mergers worldwide by dollar volume, but has dropped to 18th this year.