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Hilton Group has added Chase Manhattan and UBS Warburg to the dealer group off its £

Co-ordinating arrangers BOCI Capital and SG are seeking sub-underwriters for a benchmark setting fundraiser for Hutchison International Finance (BVI). The HK$5bn transaction will be guaranteed by parent company Hutchison Whampoa. The five year term loan is priced at 48.5bp over Hibor. Banks joining with HK$500m tickets will receive a 7.5bp underwriting fee and 32.5bp up-front on final takes. Participants providing HK$350m-$499m earn 5bp for underwriting and 30bp on final allocations.

Issuance in Hong Kong, Singapore and Indonesian currencies this year has already surpassed their total volume of debt for 1999. Hong Kong dollars are leading the charge by a distance, but Singapore dollars and Indonesian rupiah are being swept along in the slipstream. The region's credit has improved dramatically since the crisis three years ago and investors and issuers alike are looking to make the most of an accelerating market. So far this year 608 non-syndicated trades in these currencies have raised the equivalent of $7.89 billion. The whole of last year raised the equivalent of $7.15 billion off 609 trades. But this impressive growth is concentrated at the short-end of the curve. Fergus Kiely, head of Euro-MTNs at HSBC, says: "The market goes in cycles. At the moment investors are keen to buy short-term in Hong Kong." But investors do not trust the sector wholeheartedly. Despite the big increase in Hong Kong dollar debt, 74.7the notes issued this year have maturities of under one year. Tiina Lee, managing director and head of Euro-MTNs at Deutsche Bank (Deutsche), says: "During the Asian crisis a lot of one-year notes were being placed which were speculating on the currency. Now, the Hong Kong Monetary Authority (HKMA) wants to see more being done in the three-year and over sector." Two years ago the HKMA asked all Hong Kong supranationals to consider only issuing notes of three years and above. This would not only justify the tax-exemptions they had been enjoying since 1992, but would increase investor confidence outside the region. But this is unlikely to happen until investors can be sure that risk has diminished. Ulrik Ross, senior funding officer at Nordic Investment Bank (NIB), is optimistic. He says: "If the market continues to show this steady growth investors will be buying longer-dated notes. This will open up excellent opportunities for issuers in Asia." However these opportunities will be limited to local investors. The promotion of the Hong Kong market in the last two years has come mainly from its government and domestic benchmark issues. Andrew Fung, treasurer at the Commonwealth Bank of Australia (CBA), in Hong Kong, thinks the presence of more foreign investors is what is needed to solidify Hong Kong as a stable international player. He says: "The Hong Kong dollar market, despite rising volumes, lacks liquidity. It is very much based on domestic investors." Singapore has also been through a process of deregulation recently. For the first time foreign issuers can place debt in the country's currency. Fung, at CBA, says: "The Singapore market has grown from zero. The Monetary Authority of Singapore's (MAS) initiative to liberalize the market is now bearing fruit." But he is sceptical about the role of foreign investors here too. With a much lower yield than the US market, it is unnecessary for investors to risk their money so soon after liberalization. He says: "Many offshore investors are keen to tap the market, but I don't think foreign buyers are ready for Singapore dollars yet." MAS has introduced several measures to boost Singapore's debt market, including a range of tax-exemption schemes, building bigger benchmarks and improving transparency of issue prices. Its goal, to make Singapore the hub of the Asian debt market, will only occur if the market accelerates still. This year, 53 non-syndicated trades have been isssued in Singapore dollar, raising the equivalent of $518.39 million. But 512 non-syndicated trades have been issued in Hong Kong dollar raising $7 billion. Clearly, there is some way to go. Tiina Lee, at Deutsche Bank, says: "The Singapore dollar market is much smaller than that of Hong Kong, so its trading volumes are lower. Trades must be approved by the MAS too, so there is a slightly freer environment in Hong Kong." Private banks dominate this environment. Of the 52 borrowers that have taken advantage of the Hong Kong market this year, just four have been private corporates. Triple-B-rated Hilton Group (Hilton) is one of them. It has issued one note in the 10-year sector offering a generous coupon of 9.1)But the placement was via reverse enquiry and Hilton admits Hong Kong dollar is not one of their required currencies. Vinod Parmar, assistant group treasurer at Hilton, says: "Hilton as a name is very strong in Hong Kong. We used the issue as a marketing exercise." But most borrowers recognize the benefits of having access to Hong Kong and Singapore dollars. Despite recent complaints by Joseph Yam, chief executive of the HKMA, about the efficiency of the markets in the region, an increasing number of issuers are finding new buyers in Asia. Ulrik Ross, at NIB, says: "We will be roadshowing in Hong Kong and Singapore in the near future, and intend to make the most of the opportunities on offer there." And most traders expect the region to continue flourishing. The domestic markets of both Singapore and Hong Kong have been revitalized by the changes implemented by the respective authorities. The next step is to entice enough foreign backers to make the region's liquidity attractive to the majority of investors. Tiina Lee, at Deutsche, says: "Both markets will continue to grow. Increasing exposure and diversification to western credits can only be a good thing for Asian investors."

INTERNATIONAL Business Machines (IBM) followed up its two yen denominated bond issues this year with a five year Samurai transaction this week, making it the second largest international issuer of yen denominated debt this year. The corporate issue is further confirmation of the increased interest by international companies in the Samurai bond market.

Hypothekenbank in Essen has added Credit Lyonnais as a dealer off its euro10 billion ($941.44 million) debt issuance programme.

India Sumitomo Bank has won the mandate for a ¥5bn refinancing for National Thermal Power Corp.

Bank of America, Bank of Ireland and Chase Manhattan have won the mandate to arrange a Eu1bn loan facility for Independent News and Media to support its acquisition of the Belfast Telegraph titles. The debt is split into three tranches: a Eu600m five year term loan; a Eu250m one year bridge; and a Eu150m five year revolving credit. Pricing starts at around 200bp.

FRENCH TYRE manufacturer Michelin is set to raise $1bn through a novel syndicated loan that has been sold not only to traditional bank lenders but also to insurance companies. By adopting this structure, Michelin has become the first European borrower to combine the two sources of liquidity on such a large scale. Initially Michelin wanted to raise $750m over 12 years, split between a $500m tranche sourced from the bank market and a $250m piece from the insurance industry. But the company has increased the overall size to $1bn after a strong response in syndication. The split between bank and non-bank investment has not yet been settled.

FRENCH TYRE manufacturer Michelin is set to raise $1bn through a novel syndicated loan that has been sold not only to traditional bank lenders but also to insurance companies. By adopting this structure, Michelin has become the first European borrower to combine the two sources of liquidity on such a large scale. Initially Michelin wanted to raise $750m over 12 years, split between a $500m tranche sourced from the bank market and a $250m piece from the insurance industry. But the company has increased the overall size to $1bn after a strong response in syndication. The split between bank and non-bank investment has not yet been settled.

Experts have accused the Japanese domestic MTN market of being inefficient, slow and out of date. The clearing system is time consuming and paying agency services are risky. Radical reform and improved technology have been called for. The market harbours a wealth of opportunity. If improvements take place, borrowers of all nationalities could unlock the market to find a fresh set of investor sources in Japan. Accounting practices are central to the instability of the domestic system. Paying agency funds are not separate from a bank's main balance sheet. And in a shaky market environment issuers have cause for concern. If a bank collapses its paying agency funds are also lost and it will default on debt repayments. This is unlike the Euromarket where these funds are protected. The problem is more acute given the antiquated computer systems and procedural delays. Trades can take up to three days to settle. Most Japanese banks and paying agents acknowledge the limitations, but the subject matter is sensitive and many declined to comment. The market is small and undeveloped. Dealers estimate that there are around 10 domestic programmes in Japan. And there is only one Samurai facility - a ¥500 billion ($4.54 billion) programme signed by Svensk Exportkredit (SEK) in October 1997. The choice for regulators will be whether to update the domestic system or to allow international paying agents (IPAs) and the international clearing houses to regulate the market. As yet there are no plans for change. The domestic paying agency service is the most worrying aspect for borrowers doing business in Japan. Per Akerlind, executive director and treasurer, at SEK, says: "The paying agency side of the domestic programme has been worrying us very much. We have been speaking with the authorities in Japan, but so far nothing is being done to change the system." SEK has only issued ¥6 billion off its Samurai programme and has done no recent trades. Akerlind, at SEK, has a pessimistic outlook. He says: "If non-Japanese issuers want to find Japanese investors, it is probably less work and less risk to use a Euro-MTN programme." Market instability has led issuers and investors to be reluctant to trade highly structured paper. But Japan's low interest rate environment means investors need structured notes to gain higher yields. Therefore the domestic market is not an attractive option. Koji Omachi is deputy manager of the syndicate desk at Nomura Securities (Nomura). He says: "There are several Japanese issuers with domestic MTN facilities but issuance off them is just like issuing corporate bonds. It depends on the issuer's preferred type of trade. But generally they don't issue highly structured notes off these programmes." Yet Yutaka Fukushi, senior manager at Industrial Bank of Japan Securities (IBJS), believes he has seen some improvements. He says: "In the past there was too much regulation in the market. For example, callables and floaters were not permitted. Due to deregulation in the past few years such rules have been reduced and Japanese issuers are going back to domestic programmes." Bank of Tokyo Mitsubishi (BTM) has the largest share of arrangerships and dealing in the domestic MTN market. It is the arranger and principal paying agent off SEK's Samurai programme. But even a spokesman at BTM says: "For the last two years there has been virtually no issuance in the domestic MTN market. The Euro-MTN facility is much more convenient for frequent issuers." There is potential, but the market is crippled and some experts are far from optimistic. Omachi, at Nomura, is scathing. He says: "I don't believe a lot of effort will go into deregulating the domestic market and it probably wouldn't be that helpful anyway. Even for Japanese issuers the Euro-MTN programme is a much more flexible tool. The domestic market won't grow any more, if anything it will shrink." International paying agents (IPAs) could revolutionize this market. Graham Cox is global product manager for programme debt at Deutsche Bank in London. He comes from Bankers Trust before it merged with Deutsche Bank. As chairman of the International Paying Agents Association (IPAA), he believes that if the Japanese market was willing to become more open and inclusive change would happen very quickly. He says: "If regulators want the system to work as efficiently as possible real time settlement, clearing and the role of paying agents will all have to be considered. "For the market to be attractive to foreign issuers it has to be user-friendly. That means if foreign issuers want to use their global IPAs, those IPA businesses have to be able to have membership and access to the domestic clearing systems." But a spokesman at BTM is sceptical about whether IPAs could be successful in the domestic market. He says: "Non-Japanese banks could not serve as paying agents in the domestic market. They have not focused on this operation in the past and they do not have the necessary client relationships." And in the Japanese market relationships are crucial. Many domestic MTN facilities have two paying agents, primary and secondary. But this is simply to keep relationship banks happy. The Japanese domestic market is closely guarded by those involved. This will be the greatest hurdle for international banks looking to break into the business. Fukushi, at IBJS, thinks Japanese banks have the edge on foreign houses when dealing with Japanese investors. He says: "Now there is much greater competition in underwriting between security houses than five years ago, particularly since more American banks have arrived. However, in the domestic market I think the Japanese houses will continue to dominate because they have the long-term relationships with both issuers and investors." Yet, if changes were made to improve the domestic system and foreign banks were able to enter the market as paying agents the rewards for issuers, Japanese and non-Japanese, could be great. SEK believes there are benefits to having a domestic platform if only the problems in the market could be eradicated. Its Samurai facility enables SEK to reach investors which its Euro-MTN programme cannot. Akerlind, at SEK, explains: "SEK felt that if it standardized the documentation once it would mean less work in the future. Many Japanese investors wanted Japanese law for certain structures, so if we signed a domestic programme with domestic law we could have a competitive edge." If the market was opened up the Samurai facility would become more attractive to other non-Japanese issuers. A spokesman at BTM says: "Some small and medium regional investors in Japan are restricted from investing in paper off Euro-MTN facilities, not because of official legislation but due to their own limitations. If a corporate has a domestic programme in place it can tap a much wider investor base." And Fukushi, at IBJS, points out the advantage of domestic issuance for Japanese borrowers of lower credit, particularly in difficult market conditions when investors are risk adverse. He says: "The Samurai market is very small now due to the Asia breakdown. However, more lower-rated issuers in Japan will look to this type of facility, especially now it is easier to do structured trades." He continues saying that if market conditions were more suitable many Japanese issuers would sign domestic facilities for language reasons. He says: "Within the next few years increasingly more Japanese issuers and subsidiaries of Japanese companies in the Euromarket will shift towards domestic issues Reporting and documentation is easier for them in Japanese. It is much more work to have to do everything in English." Most dealers consider that if the regulators concentrated on updating the procedure the impact would be positive. A BTM spokesman says: "It is the documentation process that is time consuming and expensive. It is not very efficient. Deregulation in this area is not on the agenda at the moment, but if it did occur, and I hope that it will, issuance would be much more convenient." Deregulation could turn the market around. But success will depend on the attitudes of investors. And change will only happen if it is considered economical. The BTM spokesman continues: "There could be potential in the domestic MTN market, but it all depends on costs and the workload involved. If reform takes place in the system and investor appetite is there I think we would see expansion." Cox, at Deutsche Bank, says: "The decision will be whether to settle the problems in the domestic system or to use the infrastructure set up by Euroclear and Cedel. The challenge for the professionals in the local market will be to create an infrastructure that can support traditional business and local requirements, but that is flexible enough to attract foreign investors and issuers and does not restrict entry. Protectionism versus internationalization." The Japanese government is committed to rejuvenating its financial system. But whether the domestic MTN market will be considered worthy of an overhaul is uncertain. For now, IPAs are sitting back and weighing up the pros and cons of taking on the challenge. And in the meantime hidden potential in a dormant market lies waiting to be realized.

PARTNER Communications, the Israeli cellular operator, is due to launch a $250m 10 year senior subordinated notes issue next week, targeting both high yield and emerging market investors. Rated B3/B-, the deal will be lead managed by Chase Manhattan and Schroder Salomon Smith Barney. The deal was roadshowed in the US this week, after the lead managers completed the European leg on Monday.

International paying agents (IPAs) have a lot on their plate. Consolidation in the industry is relentless and politics is hampering progress among clearing systems. "Competition is stronger than ever, and with banks fighting more aggressively to increase their share of the market, IPAs are being forced to reassess their strategies in order to stay ahead of the game. Global M&A activity is rapidly shrinking IPA numbers. And niche providers could disappear as larger banks gobble up smaller ones. Within the last two years Citibank has bought JP Morgan's business, Deutsche Bank merged with Bankers Trust, Bank of New York acquired the service of Barclays Capital and BNP's merger with Paribas has resulted in increased market share for the group. And there is more to come, according to Graham Cox, global product manager for programme debt, at Deutsche Bank, and chairman of the IPA Association. He believes that there will be room for domestic players. Yet, for global providers, he says: "We're going to end up with two or three large players who can demonstrate that they have invested in the necessary technology and infrastructure that global issuers will demand." Gary Webb is the London representative for BNP Paribas Group's (BPG's) global corporate trust. He has witnessed rapid developments in the market in recent years. He says: "Thirteen years ago, when I first joined this area of business, there were around 25 paying agents active in the market. This has narrowed down considerably. There are six or seven serious players now. Competition is going to be hot among this smaller group." Citibank was the most active IPA in the Euro-MTN market last year, according to MTNWare. It recorded a 29new Euro-MTN programmes signed in the past year. John Hood, global sales director, global agency and trust services, at Citibank, considers it is the bank's dedication in a range of areas that keeps it at the top. He says: "Citibank's success lies in its continued commitment to the market and its strong relationships with clearing systems. It reinvests all the money made from the product back into the business, into technology and people. This is also a highly client-focused business. And we have loyal clients, even clients of JP Morgan weren't dislodged after the move." But although banking machines such as Citibank and Deutsche Bank look set to dominate the market, Tom Casteleyn, vice-president at Bank One, believes there is something extra that smaller businesses can offer. He says: "There is room for niche players because some MTN programmes incorporate features that demand a certain flexibility from the IPA. These features might be related to the issuer or to certain countries it wants to issue in. For some of the larger IPAs this flexibility is undesirable. This is where the niche player can add a lot of value." And many market players consider that traditionally-strong domestic houses, such as BNP in France and Dresdner in Germany, will find more opportunities for business because Emu is blurring the lines between domestic securities and Euromarket issues. They also have well-established relationships with domestic clearing houses. Webb, at BPG, explains: "BNP hasn't been a particularly large player in the capital markets, but it is strong domestically. It has a strong focus in France and good links with domestic clearing systems as evidenced by the ground-breaking same day Euro-CP trade which it executed for General Electric Capital Corp, last year." One event which could dramatically alter market dynamics is a merger between the two Euromarket clearing systems, Euroclear and Clearstream. If it occurs, and many market participants think it could happen before the end of the year, IPAs will have to reassess their own efficiency. Having only one clearing house would simplify and speed up many market procedures. Also the way IPAs are paid would change. Casteleyn, at Bank One, says: "A major shakeout in the market will only occur if the clearing systems rationalize and Eurobonds become dematerialized. It is highly likely that sometime in the next two years Euroclear and Clearstream will merge. And in the event of this the common depositary structure might disappear and the way the IPAs are paid will change. This may change the economics for quite a few players." But Euroclear and Clearstream are at loggerheads. Both have different strategies for the way they see the settlement system moving. Euroclear prefers what it terms an evolutionary route. This involves links or alliances between central clearing systems and domestic houses. Euroclear formed an alliance with Sicovam and ParisBourse in November 1999. But Clearstream wants a clear-cut merger with only one central securities depositary (CSD) left standing at the end. Clearstream was formed on January 1 2000 by the merger of Cedel and Deutsche Bourse. The market is eager for cooperation between the two CSDs, but for now there looks like being little change. With over 30 settlement systems in Europe there is a long way to go in streamlining. and one official from a top IPA house thinks more fragmentation is likely. He says: "Last year, with Emu, it seemed that there was every possibility Euroclear and Cedel would merge. But as the year progressed the houses have increasingly gone their separate ways. Over the next five years there's likely to be more divergence." Denis Peters is a vice-president at Euroclear Operations Centre. He puts forward Euroclear's vision that alliances are a positive step forward. He says: "To compete in the market place today clearing houses need a greater degree of integration, most obviously through alliances with domestic houses. Competition will change in nature if the market moves towards a common clearing process, but it depends on how that evolves." Yet David Cowan, chief of corporate communications, at Clearstream, is sceptical about this approach. He replies: "Euroclear keeps talking about links and alliances but really it's just like playing musical chairs. The same organisations are all still there, they're just moving around giving the appearance of action whilst leaving the chairs in place by protecting the same territory. At some point the music's got to stop and the market will see one clear strategy of mergers." Cox, at Deutsche Bank, is realistic in his outlook. Although the US market can successfully have one clearing system he emphasises that Europe has more complex nuances. He says: "There are benefits to both Euroclear and Clearstream's models. But the emergence of one CSD is unlikely to happen for a long time, and in any case having more than one creates healthy competition. There are currently too many vested interests, political, national and personal, which get in the way in Europe." Market pressure will no doubt force a solution in this matter and it will be left in the hands of regulators to make the CSDs comply. But even with one common settlement platform for the Euromarket there are hurdles to overcome. Peters, at Euroclear, says: "Laws and regulations have to change before we can have one harmonised system. Even when we have one pan-European system it will be difficult to have a seamless process because of different tax and registration laws in different countries. Such changes need to come in tandem with changes in the clearing systems." Online trading in Euro-MTNs began in 1999 and IPAs are addressing the implications that increased speed and efficiency will bring. An official at a top IPA firm, says: "Lots of businesses are at a crossroads now. E-commerce is high on the agenda. Most IPAs know they've got to invest in technology. But they have to weigh up whether there's enough value in it and how it will enhance the business." But ultimately all banks accept that technology will be the main component to keep them at the top of the pile. Hood, at Citibank, says: "Online trading will bring a quicker turnaround on trades. This will mean IPAs will have to develop systems and technology to keep up and respond to the new speed of dealing." Deutsche Bank put a web-based system in place for clients early last year and Citibank rolled out its system, Citibank Agent.Direct, on August 16, 1999. These services allow global issuers to access trading details, programme outstandings and payments. Issuers can also send documents and receive research information and settlement reminders electronically. Hood, at Citibank, claims that as well as being more efficient, Citibank's system can highlight any changes or trading discrepancies to clients. But as traditional methods of business change IPAs have to re-assess where they can add value. Paying agencies used to make money from bearer certificates. For example, when an investor didn't cash in its bond on the day payment was due, the IPA would benefit from holding that cash. But this is being phased out. Hood, at Citibank, says: "IPAs have to be resourceful and creative in the way they get paid. Banks attach to market inefficiencies and by filling those gaps and adding value there they make money. But the areas where, in the past, IPAs benefited are disappearing. IPAs have to be alert to changing market dynamics to find new opportunities elsewhere." An area most IPAs believe holds great value is dealing in more complex and structured securities. An official at a major IPA, says this is one area the business plans to focus on strongly. He says: "The increase in structured products, asset-backed facilities and more complex repacks will restore the value or perception of value to the IPA service." Other firms are equipping themselves with all the necessary services in order to rattle the top houses. Webb, at BPG, claims the bank's strategy is to be a one-stop-shop. He says: "A major step we're hoping to make in the first half of this year is setting up a subsidiary company in London to offer trustee services. This service will also complement the offshore trust activities of BNP. At the moment we are at a disadvantage with US houses in not offering this product. We believe this will put us on a level playing field with our competitors." If eventually there is only one business left standing, IPAs agree that it will be a bank which has focused on the business as a core offering. Cox, at Deutsche Bank, concludes: "IPAs are striving towards achieving straight-through processing. There are many inefficiencies which will take time to iron out. We are not originators, but intermediaries and therefore cannot change the market, but we can work with others and influence its development. Where our business can add value is in the enhanced services we offer. This could be through technology, cash management, or handling more of issuers' back office and treasury."