* City of Prague
Maturity: June 15, 2009
Issue price: 96.965
Fixed re-offer price: 95.365
Spread at re-offer: 105bp over the 4% July 2009 Bund
Launched: Tuesday June 1
Joint books: ABN Amro, Deutsche
ABN Amro - The transaction was mandated to ABN Amro and Deutsche Bank in mid-March after a public tender in which about 10 bids were submitted. We undertook roadshows last week and began the bookbuilding process immediately afterwards.
The transaction came into the market during a period of dramatic spread widening, with even high grade issues moving out by around 10bp to 12bp.
We felt that compared to single-A corporate paper such as Mannesmann and Ericsson, Prague had relative value at the 100bp to 105bp area, and we priced the deal at 105bp. At the time, Slovenia 2009 paper was trading at 102bp over and Hungary 2009 bonds at 104bp over.
We were nicely oversubscribed at the time of launch. Our distribution was fairly pan-European: we sold 23% of the bonds to Germany, 11% to Austria, 11% to the Benelux, 32% to France, 24% to Spain and 2% to the UK.
The spread has stayed firm at plus 105bp since launch, which is a good achievement given the backdrop to the deal.
Deutsche - Prague shows that emerging market deals can be concluded successfully even in difficult market conditions - but they do need the careful preparation that presaged Prague's debut in the euro market.
We were awarded the mandate several weeks ago and began premarketing about 10 days ago. But we had to adapt to changing market conditions when pricing the deal. With the markets soft, we delayed the transaction for two or three days before launching it on Tuesday.
The issue went well - ABN and ourselves were sold out at the time of launch and we haven't seen any flowback. The issue is still (Thursday pm) bid at the re-offer level of plus 105bp.
Prague has been in the international markets before with a dollar issue, launched in 1994, which matured this May. With its A- rating, Prague is not perceived as pure emerging market risk.
We had to widen the spread slightly from the originally indicated 90bp-100bp over area, because of the volatility in the market. All comparables - both highly rated emerging market paper and single-A corporates - had widened by a few basis points. We therefore widened the spread to 105bp over and, because we had agreed a coupon of 4.625% with the issuer, launched the deal at a discount to par.
The bonds went to a mixture of accounts - retail intermediaries, bank funds and asset managers. We sold about 75% of our bonds in Germany, 10% in Austria, and the remainder to a mix of accounts in Switzerland, the Benelux and France.
"...the pricing was quite fair and we had no problems placing our bonds. We sold our Eu2m to banks. The deal had been in the pipeline for some time and we had plenty of time to find buyers. From our point of view the deal was a success.
The fact that the deal was postponed and the spread widened suggests that the leads had difficulty finding enough demand for Eu200m. But they were right not to postpone the issue as that would only have made things more difficult."
"...the deal went well for us. Prague is a very good credit: it has scarcity value, an A- rating, very good figures and potentially the support of the Czech Republic. It does have the disadvantage, compared to Hungary, of a 20% risk weighting compared to zero for sovereigns, but that is minor compared to its positive aspects.
The only question over the deal is how quickly Eu200m can be placed. The long maturity excludes retail and many accounts who cannot buy Prague beyond seven years. The uncertain market and delay in launching the issue also meant that some accounts decided not to buy at launch, but wait and see how things would go.
The leads did the right thing in waiting to launch the issue, rather than forcing it on the market, and they were right to adjust the price. It was talked at 90bp to 95bp over, then 95bp to 100bp over, and finally emerged at 105bp over, roughly 70bp over Euribor - a fair level in our opinion."
"...the timing was wrong in the context of a very difficult market environment and we have not placed any of our bonds.
Ten years was certainly the wrong maturity in a market as volatile as this one. The deal was never going to work in the 90bp area that the lead managers first indicated, and even at 105bp it doesn't appear to be in very good shape.
There is absolutely nothing wrong with Prague's credit it is one of the best in the region - but its euro debut was a victim of market conditions."
* Republic of Hungary
Maturity: June 21, 2004
Issue/fixed re-offer price: 99.69
Spread at re-offer: 71bp over the 3.5% July 2004 BTAN
Launched: Wednesday June 2
Joint books: Credit Suisse First Boston, Deutsche
CSFB - One of the key considerations when launching this transaction was that Hungary has an excellent franchise among the core European investor base.
In Deutschmarks alone, it has raised DM11bn through around 30 transactions. Not only does it have great penetration in Germany, it also has a strong following in Switzerland from both institutional and retail investors. And Hungary launched a very successful euro bond earlier this year.
However, the overall market environment was certainly challenging. All eyes are focused on the US employment figures due out tomorrow (Friday), and hoping for some direction about the future of US interest rates.
We felt that the pricing was fair. At 71bp over BTANs the deal equated to Euribor plus 50bp, which was in line with Hungary's Deutschmark curve. For example, it has a DM1bn February 2003 floating rate bond trading at Libor plus 50bp, and a DM500m December 2005 bond at 47bp over the curve.
As a five year bond, this deal was able to attract a mixture of retail and institutional investors. The majority of demand was from retail accounts, but we were able to attract some funds as well.
By far the largest area of demand was Germany, but we made some good sales to investors in Switzerland and Austria. Investors in Italy, France and the Benelux also bought bonds.
The early response from Swiss retail has been encouraging so, although we widened the spread slightly to 74bp over to accommodate flowback from the syndicate, the spread should soon come back in. This deal was quite some achievement for Hungary. It is doubtful if any other emerging market borrower could have raised Eu500m in the current market environment.
Deutsche - Hungary had been looking at the market for some time. It took indications from banks which encompassed a number of possible maturity and currency combinations before opting for a five year fixed rate euro bond.
Eight banks were selected yesterday (Tuesday) to submit firm bids for the deal, with the transaction to be executed in the following 24 hours.
On Tuesday we had launched City of Prague, which showed that deals from central and eastern Europe, for the highest quality credits in the region, could be done and hold their re-offer spreads.
The investor base for Hungary is more retail focused than for Prague, and nearly all the bonds have gone to retail in Germany - mainly the savings and the regional banks.
Because of its retail focus in Europe, there is a clear distinction between Hungary's euro and dollar curves.
Its globals in dollars are much more institutionally placed, and they have to pay for that. But it has a good curve in Europe thanks to the large number of Deutschmark issues it has brought in the past.
We have sold slightly more than 50% of our bonds today (Wednesday) - a good achievement on day one given the state of the market.
"...a tough sell. Hungary is such a good credit, but it should be more careful when it approaches the market. Hungary's funding officials don't agree with bookbuilding and the timing of the transaction leaves a lot to be desired. If they really needed the money, then maybe this was the only way to raise it. Otherwise, they should have waited.
Hungary asked for bids last Friday and mandated the leads late on Tuesday in a negative market. The deal was then launched on Wednesday when the market was still negative.
The fact that today (Thursday) is a holiday in Germany means that investors there won't look at it until next Monday. Finally, there is a lot of uncertainty in the market on interest rates and that affects emerging market names more than others.
We haven't sold anything. It's a shame that the deal was so difficult as the borrower is one of the finest credits in the emerging markets. With its zero risk weighting there is normally a good bid out of Germany, but they need to launch demand driven deals rather than issues like this."
"...very tight pricing so we didn't see the demand we normally do for the name. Usually banks are very keen to buy Hungary because they like its credit story and because it is zero risk weighted paper.
We did manage to sell our ticket at the re-offer, to banks in Germany and Switzerland, but no more than our allotment. Premarketing and bookbuilding would have had little impact on the performance of the deal as it was purely a question of pricing."
"...we have not sold any bonds and we can't see where anyone else could have sold them. We were surprised to see this bond come to the market in the currently difficult environment at such an aggressive level.
Where is the value in this transaction? Hungary has a 2009 bond trading at 103bp over; in the dollar market its 2006 bond trades at an equivalent of Libor plus 89bp. This translates to about Euribor plus 50bp."
"...this deal was launched into a desperately difficult market environment, and pricing which was about 5bp to 7bp too tight clearly didn't help matters.
Then again, Hungary asked for bids and clearly a lot were sent in - and it is therefore Hungary's right to go ahead with the transaction. The issuer made the rules of engagement perfectly clear.
This deal has a 4.25% coupon and that is not a level that will attract retail investors. On the other hand, the spread doesn't offer nearly enough for institutional buyers.
It is almost impossible to see any relative value in the deal. Olivetti/Tecnost, for example, has just brought out a bond paying 180bp over Euribor. Hungary is rated one notch lower, and this deal equates to about Libor plus 50bp. That's not value."
"...we had only Eu2m and are satisfied with the issue. We sold to retail in Germany as the 4.25% coupon and below par issue price are attractive for those who are looking for higher yields."
* Netia Holdings II BV
Maturity: June 15, 2009
Issue price: 100.00
Spread at re-offer: 735bp over the 5.79% 2009 UST
Call option: at 106.563% in 2004; at 104.375% in 2005; at 102.188% in 2006; and at par from 2007
Note: before June 15, 2002 up to 33% of the notes may be redeemed with the proceeds of a public equity offering at a price equal to 113.125% of the principal amount, provided that following such redemption at least two-thirds of the principal amounts of the original notes remain outstanding
Maturity: June 15, 2009
Issue price: 100.00
Spread at re-offer: 735bp over the 5.79% 2009 UST
Call option: at 106.75% in 2004; at 104.5% in 2005; at 102.25% in 2006; and at par from 2007
Note: before June 15, 2002 up to 33% of the notes may be redeemed with the proceeds of a public equity offering at a price equal to 113.5% of the principal amount, provided that following such redemption at least two-thirds of the principal amounts of the original notes remain outstanding
Launched: Thursday June 3
Joint books: Chase, DLJ
For further commentary and analysis on these transactions, see the emerging markets news pages