Guarantor: Volkswagen Financial Services AG
Maturity: May 21, 1999
Issue price: 100
Fixed re-offer price: 100
Coupon: 42% (single coupon payment paid at maturity linked to Rb/$ exchange rate. Initial fix of Rb6.150/$)
Launched: Wednesday May 20
Sole lead mgr: Chase Manhattan
This issue matched a dollar funding requirement for Volkswagen with investor demand for a dollar denominated instrument giving exposure to the foreign exchange performance of the rouble versus the dollar. On the basis of Chase forecasts that the rouble will depreciate by 6%-8% on an annualised basis, this deal should offer a return of 30.5%-33.5%.
We've already seen significant client interest in the deal because of the efficiency of the structure: it gives access to the high yields associated with the rouble without any of the custody, clearing and settlement hassles of the Russian government bond market.
Also, the launch of this issue coincided with a rally in the Russian bond markets as the country benefits from increasing investor confidence that Russia has disassociated itself from the problems in Asia. Consequently this issue has traded up strongly to 102.5 on the re-offer side.
We've seen interest from private banks, corporate treasuries and dedicated emerging market funds; geographically, there has been demand from across Europe as well as from offshore US accounts. On the back of the enquiries we've received to date we expect to be flat on the deal in the next day or so.