The year of the can-do markets

  • 25 Apr 2007
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It was the lull before the storm. 1993 was a great year for most sections of the capital markets. The only cloud on a far-away horizon was the worries over the world economy which were to emerge so brutally the following year. Michael Halls reports.

or most capital markets professionals 1992 was — forgetting the economic tensions in the ERM — a highly successful year. And from the very start of 1993, it was clear that the good times were set to roll once more.

But it was more than just a year of rising — and record — volumes of business. It was also a year of steady innovation across all market sectors.

"It was a year of record volumes, record profits and record bonuses; a year of global bonds, jumbo bonds and ultra-long bonds; a year of volatility, duration and yield; a year when new money poured into the emerging markets, equity markets and MTN markets; a year when even syndicated bank lending returned to growth; a year, in short, when the only crime was to be in cash," said one commentator looking back on the year.

But that wasn’t to say that it was always easy. In the syndicated loan markets — which had had an uneven time the year before — even the best of names suffered if the pricing was wrong.

And though an extraordinarily audacious loan for the Derbyshire Building Society squeezed through oversubscribed, a landmark deal for IBM Corp, a $12bn five year revolving credit, "saw only dust" as one commentator later described the syndication.

So poor was the support for the deal at the all-important underwriting stage that the arranger had to reduce the amount to $10bn and double the front-end fees before going into general syndication.

Loan volumes bounce back

Nevertheless, for many syndicators, 1993 was surprisingly profitable given that no individual sector gave the market a significant boost. Volumes of business bounced back by 10% from 1992 reaching around $180bn by year end.

Despite the overall growth in the international loan market, the balance between the Euromarkets and the Asia markets continued to shift. Euromarket lending declined in 1993, while Asia markets increased their market share by around 5% to 28% (albeit for a relatively modest total volume of $51bn.)

But it was a headline year in other capital market sectors. International equity bankers said the last time they had been as busy was before the 1987 world stockmarket crash.

There were record volumes of new equity issuance in Europe, the US, Latin America and Asia over 1993. The volumes of primary and secondary equity sold on to the market exceeded all expectations and broke all records set in previous boom years. And with new markets opening up in Asia, Latin America and eastern Europe, the battlefield had become yet wider and more keenly contested.

More than $75bn of straight equity was sold in 1993 to investors outside the issuer’s home market, dwarfing the previous two years’ new issue volumes of $24bn (1992) and $23bn (1991).

Much of this increase was accounted for by privatisation. Using the UK as a role model, governments around the world looked to sell state assets to investors through initial public offerings.

Certainly 1993 was clearly the moment when privatisation became a global phenomenon. In Europe alone programmes were launched in France, Italy, Spain, Scandinavia, the Netherlands, Austria, Greece and Turkey. The sale of state owned industries also continued apace in the emerging markets of Latin America and Asia.

And away from the public sector, the rise in new issue volume was helped by a surge in private sector issuance — of both straight equity and equity-linked finance.

Annus mirabilis Eurobonorum

It was almost impossible to go wrong in the bond markets in 1993. Falling interest rates turned yield curves sharply positive and drove bond prices around the world to all-time highs. By the end of December, Eurobond new issue volume had reached $400bn — a 37% increase on 1992’s record figure of $290bn.

If any two themes stood out in this annus mirabilis for world bond markets, they were the increasing globalisation of markets and the extension of duration.

As ever, it was the Euromarkets’ premier issuer — the World Bank — that set the tone for the year. In January it launched a $1.25bn global offering of 30 year bonds via CS First Boston and Goldman Sachs, the bank’s ultra-long issue.

With US investors already reaching out for duration — a hunger later fed in the US market by unprecedented 100 year bonds for Walt Disney, Coca-Cola and ABN Amro — Eurodollar buyers were quick to follow suit.

But it was not until March that underwriters and issuers were sufficiently confident to try a 30 year Eurodollar issue.

The success of the African Development Bank’s groundbreaking $500m deal — led by Goldman Sachs and Lehman Brothers — comprehensively disproved the accepted wisdom that Eurobond investors would not buy long dated paper.

Following months of preparation, Italy’s $5.5bn package of 10 and 30 year bonds was the undisputed deal of the year from the equally undisputed borrower of the year. It was a triumph of courage, planning and timing with equal credit awarded to Alberto Giovannini, head of international borrowing at the Italian treasury, and his collaborators at Goldman Sachs and Salomon Brothers.

If anyone still believed that Eurobond investors were not buyers of ultra-long bonds, the progressive extension of duration in the French franc, Canadian dollar, Dutch guilder and, most spectacularly, Deutschmark sector should have disabused them.

The globalisation of a market that only 18 months previously had been dominated by domestic participants was little short of remarkable. And although bankers’ hopes for greater depth in Japan were not to materialise in 1994, the country was slowly opening up to the larger markets.

Italy’s ¥300bn global issue — another stunner from Giovannini’s treasury team — became the first international yen bond to be sold directly into Japan following the abolition of the lock-up rule.

Elsewhere in the capital markets, Spain acquired a genuine residential mortgage-backed market in July one year after the enabling legislation was passed. The Pta12tr securitisation was originated by Caja Ahoros del Mediterraneo. ◆





MAKING THE NEWS — Sandy Weill

The road to the top

By 1993 Sandy Weill’s ascent of Wall Street was almost complete. From his first job as a runner for Bear Stearns in 1955, to becoming a partner in his own brokerage five years later, Weill showed that corporate America was his for the taking.

In a protracted succession of mergers, takeovers and name changes, by 1979 his brokerage was second only to Merrill Lynch in the US. Nobody is quite sure when he made his first billion — not that anyone has been counting — but probably sometime in the late 1980s.

In 1993 Weill reacquired his old Shearson brokerage (now Shearson Lehman) from American Express for $1.2bn. This was a formidable complement to the 27% stake he held in Travelers Insurance which he had bought on the cheap the year before.

By the end of 1993, he had completely taken over Travelers Corp in a $4bn stock deal and officially began calling his corporation Travelers Group. In 1997 Weill acquired Salomon Inc, the parent company of Salomon Brothers, for over $9bn in stock.

The road to the top slot in American banking — CEO at Citibank — was almost in place.

In October 1998 Travelers Group merged with Citicorp. He became chief executive that year and remained as chief until 2003. ◆






MAKING THE NEWS — Boris Yeltsin

Yeltsin in constitutional stand-off

Man of the year for 1993 has to be Boris Yeltsin who became president of the Russian Federation in April. Although he was later to lose his gloss with the west — his impromptu drinking and mysterious disappearances were the main reasons — in 1993 he averted a potential civil war.

The crisis was a constitutional one. On September 21, Yeltsin (illegally) dissolved the country’s legislature which had opposed his reform agenda. To make this legal he ordered a referendum for a new constitution. But the trouble had already started. And on September 28, public protests against Yeltsin’s government began in earnest on the streets of Moscow. Former vice president, Aleksandr Rutskoy, was sworn in as acting president. Anti-Yeltsin protests grew, until a mass uprising erupted in the city on October 2. Russia was on the brink of civil war. But Yeltsin kept his nerve. And with the army still loyal to him and the still legal legislature barricaded within the Russian parliament building, Yeltsin brought in the tanks, nearly destroying the parliament.

Yeltsin later described his dilemma: "Could it have been done another way? Russia was drowning in lawlessness. Here I was, the first popularly elected president, breaking the law — the country [was on] the brink of collapse."

By October 5, it was all over and his Western capitalistic proposals were allowed to run their course. ◆






Turning point

Asia stands on its own two feet

Emerging market or Tiger economy? That was the seeming contradiction that faced international capital market bankers in the early 1990s when pricing Asian borrowings.

It was a difficult decision to make. By one turn, one had comparatively young thriving economies, but there was also previous histories of default and elements of political risk that made even veteran bankers blanche.

Yet it would be fair to say that 1993 was the year when the rest of the world caught on to the phenomenon of Asia’s economic growth. Certainly by the end of the year all the big Euromarket houses were preparing to step up their operations.

Mark Bucknall, former head of debt finance group Asia Pacific at HSBC was then working on the bank’s syndicate desk in London. He remembers that in the last three months of the year three Hong Kong corporates — Sun Hung Kai, Henderson Land and Cheung Kong sold Eurobond issues via Morgan Stanley and Goldman Sachs.

It was a wake-up call for HSBC. "The head of the corporate bank asked what the US banks were doing — taking away clients that we had had for 130 years," said Bucknall in a later interview. "It was the first time Hong Kong Inc had started borrowing in the international capital markets and we were being bypassed. The decision was then taken that if there were to be disintermediation, we were going to be part of it."

Four bond deals in particular caught the mood in the increasingly fast-paced and important market.

The first was when JP Morgan steered the Republic of Philippines into its first venture in the voluntary debt market after a decade long debt moratorium.

The second was the diversity that Petronas, the Malaysian oil and gas monopoly, offered when it sold the first corporate Yankee bond out of Asia — a $200m 10 year deal via Salomon Brothers.

In November the People’s Republic of China (PRC) launched a $300m Dragon bond, only its second international bond since 1986, via Lehman Brothers. It was arguably the most political and portentious issue that year.

The PRC deal broke new ground in several respects — it was the first sovereign, the first single-A credit, the first 10 year maturity and the first Asian issuer after the ADB.

Whereas previous issuers (ADB excepted) had tapped the Dragon market — effectively dollar bonds distributed in the Asian region — at least partly on account of the cheap pricing it offered, the offering by the most important sovereign in Asia was a genuine landmark in terms of promoting further issuance by Asian borrowers.

And in December Korea Electric Power (Kepco) sold $1.35bn of 10 year bonds via Lehman Brothers in what one veteran regional banker described afterwards as "the first significant dollar bond out of Asia".

But it was not plain sailing. That Asia’s capital markets were set for exponential growth in the next few years was not open to any serious doubt. But what was doubtful was the direction this growth would take.

One commentator at the time said: "Will the Asian debt markets become a new source of funding for international borrowers? Or will they be first and foremost a conduit for regional issuers to tap regional investors? Will local currency markets develop in several competing financial centres? Or, like Europe, will the majority of financing be done in non-domestic currencies through a pan-regional capital market?"

The answers to many of these questions, of course, were to come after the Asian economic crisis in 1998 when piece by piece the Asian debt markets emerged, following a global model. ◆






Movers and Shakers — Alberto Giovannini

The deal of the decade

The deal of the decade. That was how one bond commentator described Italy’s $5.5bn global deal launched in the summer of 1993.

The idea that the country could take $5.5bn from the market in one fell swoop had not occurred to many people other than Alberto Giovannini, head of international borrowing
at the Italian treasury, and his advisers at Goldman Sachs and Salomon Brothers.

In every respect the Italian global was awesome: in its size, in its conception — $2bn of 10 year paper and a staggering $3.5bn of 30 year debt for a country that had recently undergone political and economic chaos — in its execution and in the underwriting fees, the deal set new standards.

Since his heady days at the Italian treasury — he joined the treasury in 1992 when its debt management
was in crisis — he has since
moved on and Giovannini has become a major force in EU policymaking.

As leader of the Giovannini Group, an advisory group to the European Commission on financial markets issues, he is at the heart of attempts to create a single Europe-wide capital market for clearing and settlement . ◆





Movers and Shakers — Michael Dee

Morgan rises to the challenge

1993 was a critical year for both Michael Dee and Morgan Stanley. Europe had become increasingly important to US banks over the 1980s. There was still an enormous market share waiting to be grabbed.

For Michael Dee, a life-long Morgan Stanley man, it was his opportunity to shine in the firm he had pledged himself to from his first day as an M&A analyst at the bank in New York. "I took that job because it was only for two years and was widely acknowledged as the hardest job on Wall Street, at the best firm, in the toughest city," he said.

But it was in London that he truly made his reputation.

Based in the sharply growing centre of the Euromarkets, he was head of international fixed income syndicate and responsible for some of the extraordinary new issues that came to market.

Dee is credited with building up Morgan Stanley’s debt franchise globally at that time — his broad experience spans all aspects of the credit spectrum from top quality sovereigns and supranationals to wildly difficult emerging market credits.

Indeed Dee’s later involvement in Asia — he first started going to China in 1994 — meant, so he recounts, that Morgan Stanley was the only bank that increased its headcount during the Asian crisis. ◆





Timeline 1993

January 1 Czechoslovakia splits into the Czech Republic and Slovakia in the Velvet Divorce.

January 19 IBM reports a $4.97bn loss for 1992, at the time the biggest single year loss in US history.

February 26 Muslim fundamentalists plant a bomb under the World Trade Centre, killing six and injuring more than 1,000.

March 12 Several explode in Mumbai, India killing around 300 and injuring hundreds more.

April 30 The World Wide Web is born at the European Organisation for Nuclear Research. Tim Berners-Lee (pictured) uses his invention
to share data with physicists

July 27 Windows NT, the forebear of modern Microsoft computer operating systems, is released.

June YPF in Argentina becomes the first ever IPO for a Latin American oil company, with a $3bn deal led by Credit Suisse First Boston and Merrill Lynch.

September 13 PLO leader Yasser Arafat and Israeli prime minister Yitzhak Rabin shake hands in Washington DC after signing a peace accord.

October 5 Russian military and security forces quash rebellion against President Boris Yeltsin.

October 19 World Bank launches the first global Deutschmark bond, a DM3bn 10 year via Morgan Stanley and Salomon Brothers.

October 26 Kingdom of Sweden issues first global FRN, a $1.5bn three year floater via Morgan Stanley and Salomon Brothers.

November 1 European Union is formally established.

December 30 Israel and the Vatican establish diplomatic relations.

  • 25 Apr 2007

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 241,652.19 924 8.19%
2 JPMorgan 223,721.63 996 7.58%
3 Bank of America Merrill Lynch 216,064.78 722 7.32%
4 Barclays 184,894.55 671 6.27%
5 Goldman Sachs 158,954.58 518 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 32,522.19 61 6.56%
2 BNP Paribas 32,284.10 130 6.51%
3 UniCredit 26,992.47 123 5.44%
4 SG Corporate & Investment Banking 26,569.73 97 5.36%
5 Credit Agricole CIB 23,807.36 111 4.80%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 10,167.68 46 8.81%
2 JPMorgan 9,894.90 42 8.58%
3 Citi 8,202.25 45 7.11%
4 UBS 6,098.17 23 5.29%
5 Credit Suisse 5,236.02 28 4.54%