EUROWEEK: What’s your view on price discovery during bond syndication and pricing?
Denger, MEAG: I accept that it’s a seller’s market I find it a bit frustrating to see deals price so far inside the initially indicated spread level. Initial price thoughts are there to help investors to decide whether or not to participate in a deal and IPTs provide the basis for investors to assess the relative value of a deal. If the final spread ends up being far away from the IPT, the valuation work investors put in to begin with is wasted. So I would like to see deals being marketed and priced within a specific spread area.
Bank syndicates also could do themselves a favour and cut back on order inflation by simply starting with a more realistic and invariably tighter spread. Added to which, I would like to see investors more resolute in their initial value judgments, and be more prepared to turn away from a deal if the spread does not meet their target.
Hoarau, CA-CIB: I realise that some trade or switch ideas are killed during the bookbuidling phase because guidance is tightened between opening and closing the book and this makes many investors unhappy. However, we must also represent the issuer’s interest, and if there is an extraordinary demand in the book within the fixed price range, we will be obliged to revise it formally and test the investors’ appetite at a tighter level.
So I would support the idea of a fixed spread range providing that some conditions are respected. I would welcome less opportunistic investor behaviour, less inflated orders and more limited discrimination during the allocation process — which is triggered by big real money investors systematically asking for their orders to be protected which is often at the expense of smaller end accounts.
Should market practices evolve to a fixed spread range, it goes without saying that limited orders that are amended to the re-offer during the bookbuilding will suffer a disadvantageous treatment during allocation.