Euro issuance took centre stage this week as US dollar markets continued to succumb to the volatility caused by the inversion of the yield curve and increasing fears over inflation and interest rate rises. Fed chairman Alan Greenspan took a hawkish stance in his Humphrey-Hawkins testimony on Thursday, suggesting interest rates would soon rise further. Meanwhile, swap spreads continued to drift wider - an uneasy background for issuers such as KfW and the Kingdom of Spain, both looking to issue globals soon. KfW is expected to choose the 10 year sector for its $2bn deal via Merrill Lynch, Morgan Stanley and Warburg Dillon Read, while Spain is a likely five year candidate. Rumours that the Spanish deal had been mandated to US houses were largely discounted. Venezuela is conducting non-deal specific roadshows in Europe next week and market players expect a euro deal to emerge shortly after. Bank of Tokyo-Mitsubishi is set to price its $1.5bn subordinated debt issue led by JP Morgan and Merrill Lynch today (Friday). Despite the turbulence, Fannie Mae and Manitoba were able to issue highly successful transactions. Fannie Mae's three year Reference Note was increased to $5bn and attracted a strong international following with some 40% placed outside the US. Manitoba chose the 10 year sector for its $500m deal, an inaugural bond in the global market for this rare provincial issuer. In comparison to the dollar market, the European outlook is calm. Such stability enabled a diverse range of credits to tap the market. Finland launched a blow-out Eu3bn syndicated government bond. Upped from Eu2bn and priced at 30bp over Bunds - the tight end of price talk - the issue tightened further in the aftermarket to 28.5bp over. The Hellenic Republic will next week launch a Eu2bn 10 year via Credit Suisse First Boston, Deutsche Bank, Morgan Stanley Dean Witter and National Bank of Greece. Pricing in the low 50s over Bunds is expected. The appetite for Greek assets was highlighted this week when Public Power Corp successfully raised Eu300m of seven year FRNs at Euribor plus 45bp. The bond was initially mandated to Bayerische Landesbank at plus 42bp all-in, but eventual leads ABN Amro, BNP Paribas and Dresdner Kleinwort Benson were able to make significant fees on the issue at an all-in of 49bp. Sales were made as tight as plus 41bp during the week as momentum behind the deal grew. The EIB launched the first targeted EARN since the programme was revised at the end of 1999, a Eu500m retail targeted October 2002 deal. Launched at about Euribor minus 15bp, the issue was condemned as unrealistic and sharply tighter than the February 2003 EARN at Euribor minus 9bp. However, bookrunner Caboto maintained that the paper would be absorbed by both institutions and retail, and several syndicate members backed the view that the product was ideal for the retail investor. That retail is still focusing on the shorter part of the curve was highlighted by new issues or increases to deals for ABB, BNG, HypoVereinsbank and KfW. A series of subordinated Mediterranean issues also emerged. BBVA raised Eu500m of lower tier 2 debt, while Banco Espirito Santo raised Eu300m and Banca Lombarda tapped the market for Eu350m. Alongside the appetite for higher yielding corporate debt, investors want subordinated paper, particularly with the wave of European banking M&A holding the prospect of upgrades in the sector. AXA raised Eu500m of subordinated perpetual capital this week, callable after five years, and its compatriot AGF is planning a Eu450m 20 year non call 10 transaction via Crédit Agricole Indosuez and Goldman Sachs. In the UK, Nationwide has mandated Barclays Capital to raise tier 1 capital. SNS Bank is planning a Eu500m-Eu750m senior transaction via BNP Paribas and Deutsche. Bankers expect pricing in the mid-30s over Euribor. US corporates Textron, Air Products, Rohm & Haas and Manpower are all lined up to tap euros. And from Europe, Sonera, Iberdrola, BPB and Vattenfall are readying transactions.
February 18, 2000
