n Province of Buenos Aires
Rating: Ba3/BB/BB
Amount: Eu50m (increase to Eu100m issue launched 24/06/99)
Maturity: July 14, 2006
Issue price: 100.00
Fixed re-offer price: 98.75
Coupon: 10.625%
Spread at re-offer:
647bp over the BBR 2006/662bp over the 2006 OAT
Launched: Tuesday July 6
Joint books: Deutsche, Paribas
Bookrunners' comment:
Deutsche - Basically this has been a deal that since launch has been taken up substantially by retail attracted by the high coupon of 10.625%. Almost from the second day after we launched the transaction German retail investors decided they liked the issue and have been big buyers ever since.
Paribas - We increased the deal by Eu50m because we had good demand on the retail side.
We did the add-on at 647bp over Bunds, which was an improvement on the original 663bp launch spread.It has been a nice transaction and we sold it into Italy, Switzerland, Germany and Spain."
Brazil
n Federative Republic of Brazil
Rating: B2/B+
Amount: Eu700m
Maturity: July 29, 2002
Issue/fixed re-offer price:
Coupon: 9.5%
Spread at re-offer: 600bp over the 4.5% July 2002 BTAN
Launched: Thursday July 8
Joint books: CSFB, Dresdner Kleinwort Benson
Bookrunners' comment:
CSFB - The deal has exceeded the street's expectations. We are over the moon about the way it's gone.
This is the biggest emerging market deal at issue done in euros and we achieved the perfect issue size. It is trading well, there is good liquidity in the secondary market and clients are happy.
We launched the deal at Eu700m. Brazil wanted to do a benchmark transaction and we purposely did not go out with an issue size at the beginning. It was sized according to demand and we were careful not to oversize the transaction.
It priced in line with secondaries. The Brazilians have a five year dollar deal that trades at 750bp.
This three year euro deal swaps into dollars at 650bp. Our guess is they would probably have to pay 725bp over to do a three year issue in dollars so they got good pricing compared with the dollar market.
The deal has done well because it is at the short end of the curve, it was priced realistically and to attract institutional demand. Also there is still a lot of cash in the system.
In Europe people are still underinvested in the emerging markets and up until now all they could buy from Latin America was Argentina and Mexico.
Distribution was predominantly to continental Europe. The biggest portion went into Italy, followed by Germany, Portugal and Switzerland.
We found some good interest from emerging market accounts in London but they did not drive the transaction.
Given that it is so early there is little retail in there. From our book it's about 10%. It is expected that will increase over the next few weeks because of the 9.5% coupon.
Dresdner KB - This was an absolute blow-out. The Brazilians were extremely concerned about structuring the deal correctly and doing the right size.
With this deal they wanted to do everything right. They wanted it to be big enough to be an institutional benchmark to be followed by corporates from Brazil.
The minimum for a benchmark is Eu500m but we ended up launching the deal at Eu700m. We initially started marketing in Italy and by the time we roadshowed in Frankfurt this week it had received good press coverage and attracted big institutional buyers who usually are dollar-based funds but are also looking at euros because they also receive funds in euros.
By the time we were ready to price, the transaction was 20% oversubscribed. We could have done Eu1bn without any problem but we really wanted to ensure spread tightening.
Looking at broker screens they are bidding every single bid at or above the fixed price re-offer. Right now (Thursday pm) the spread is at 589bp.
We had quite a lot of Italian interest but that was scaled down to a third. We sold a third into Germany, a quarter into the UK and the rest into Iberia.
Insurance companies and some dedicated emerging market funds were the main buyers, with ultimately about 25% earmarked for retail.
We did the deal at 600bp because a big fund manager buying Eu10m-Eu20m will only be attracted if they see relative value.
It offers value relative to where Argentine euros trade, with the Argentine 7.125% of 2002 at 370bp and Argentina's old November 2002 DM deal at 400bp.
If you translate the Brazilian dollar deal maturing in 2004 into euros it comes out at about 640bp to 650bp over.
This is a 2002 deal and the difference between points on the yield curve is about 75bp in dollars and about 60bp on the euro side.
If you priced a 2002 deal in dollars the spread difference would be about 75bp to 85bp a year between a 2002 and 2004 transaction.
Market appraisal:
"...we think the deal will ultimately go well. We think the lack of definition of deal size up until the last minute could have caused a little bit of uncertainty, but it has done well given that we still have a difficult market due to the fact that there is a lot of supply coming to the market."
"...we were not involved in the deal but from what we can gather it achieved pretty good placement. It is the largest emerging euro deal done in one placement. It seemed it was priced to get the size."
"...this deal shows that the euro market is strong for the emerging markets at the moment.
The US market is quiet, if not dead, but you still see a number of emerging market deals in Europe which is testament to the investor base over there.
Despite a difficult underlying government bond market we are seeing good demand for emerging market product.
Since last week we have probably seen the 10 year German Bund fall two points."
"...the deal will sell itself because there is just not any Brazilian paper in euros and they are getting good press in Europe at the moment, so it was a natural.
However, it will take a few days to see whether Eu700m was too much or not.
We have seen Eu100m trade across the screens, which means that some of it did not go to good hands. They may have overallocated some accounts."
"...it looks like it is doing well. The deal is trading well on the broker screens. It is at 99.50 to 99.55 so it is trading above the re-offer.
First of all the market has been much better since the US has announced a neutral bias toward tightening, at least better than a few weeks ago.
Secondly there has been a lot of Argentine paper and there was a need for diversification and Brazil has done well in the past with European transactions.
Also three years is a good maturity. There are not a lot of sovereigns coming to the three year sector.
The deal also has a nice coupon so we expect it will continue to sell into retail."
Lebanon
n Société des Ciments Libanais
Amount: $85m
Maturity: July 16, 2006
Issue/fixed re-offer price: 100.00
Coupon: 10%
Spread at re-offer: 399bp over USTs
Launched: Wednesday July 7
Lead mgr: Warburg Dillon Read
Bookrunner's comment:
This is probably the most complicated issue out of the Middle East to date and represents a restructuring of the outstanding bond liabilities of SCL. As such it was more of a corporate finance/financial engineering exercise than a straightforward Eurobond and took about two months to put together.
This transaction involves an exchange offer for SCL's $50m 9% of January 2003 amortising issue - the first Euromarket offering by a Lebanese corporate - and a new money tranche to restructure a $35m domestic bond with the same maturity.
The end result is a seven year bullet transaction which gives SCL a much more efficient debt structure which should help it to implement its business plan which involves expanding beyond Lebanon, where it is facing growing competition, into other Middle Eastern countries such as Syria and Egypt.
Our placement was overwhelmingly to banks in Lebanon and some in Switzerland. They were attracted by the double-digit yield and the rare opportunity to buy Lebanese corporate debt.
Market appraisal:
"...we saw keen interest in this issue from Lebanese institutions which know the SCL name and like the fact that Holderbank of Switzerland has a 53% stake in it.
The pricing was seen as attractive and so investors were happy to take a buy-and-hold position in the deal."
