Guarantor: Crédit Communal de Belgique
Amount: Lfr2bn, increased to Lfr2.5bn on 20/8/98
Maturity: September 3, 2004
Issue price: 100.00
Redemption: linked to the performance of the BEL-20 index; maximum return 17% p/a; minimum redemption 100%
Launched: Tuesday August 18
Joint leads: BIL (books), CCB
* Daimler-Benz Finanz (Luxembourg)
Guarantor: Daimler-Benz AG
Maturity: December 1, 2003
Issue price: 102.40
Launched: Friday August 17
Joint books: BIL, Dresdner Kleinwort Benson
Joint lead: CCB
The Luxembourg franc sector shook off the summer lull with two new issues this week. On Friday BIL and Dresdner Kleinwort Benson brought a vanilla, Lfr2bn Eurobond for single-A rated Daimler-Benz.
Despite the holiday period the deal was enthusiastically greeted by the market. "The name quality isn't particularly wonderful," said one banker. "But the timing was just right in that it captured some of the demand people have for plain vanilla paper.
"There is a general lack of paper in the market and the deal is for a good maturity -- just five years which is now more unusual in that issues tend to be longer," she added.
The yield to investors, however, is reaching historical lows. "I haven't seen levels as low as this," said one trader. "But our salesforce is saying that despite the 4.1% yield that the bonds are being sold. Investors now expect rates to drop further and so are eager to lock into these current levels rather than go long on the curve to claw the extra yield."
The broken maturity -- the bonds mature in December 2003 -- was used to ensure that the final yield just made the 4.1% figure. Market opinion was that a figure between 4.01% and 4.09% would have been even more difficult to investors.
Another noted that the Daimler-Benz would prove more popular with investors than last week's step-up subordinated deal for Genfinance. "There's only 70bp in yield between the two bonds," he said. "Which would you prefer a steady number like this at five years or go out for twice the time for some subordinated paper?"
On Tuesday BIL took the books again on a structured deal for Cregem Finance.
"Demand for the deal came from our network and those of a couple of other banks," said a BIL official. "For this reason syndication was limited to those banks that had already seen demand from their investors."
This was the second such deal that BIL has put together this year. Other bankers said that they could see little demand from investors in their network and were largely unmoved by the issue.
The bonds are linked to the performance of the BEL-20 index -- well known to all Benelux investors -- and contain a capital guarantee. A maximum return has been capped at 17% with a set of embedded put options engineered by CCB's derivatives desk.