Maturity: April 7, 2004
Issue price: 100.00
Redemption: linked to the performance of the SMI (Swiss Market Index) maximum redemption = 170%; minimum redemption = 100%
Launched: Monday March 16
Joint leads: BIL (books), CCB
There was just one issue in Luxembourg francs this week -- an innovative and specialised play on the Swiss stockmarket. The issue was led by BIL and CCB with placement entirely destined for the two affiliated companies' network. BIL and CCB both belong to the Dexia holding group.
The minimum syndicate needed for the issue to be classified as a Eurobond was formed, with ABN Amro, Crédit Agricole Indosuez and Bayerische Landesbank taking the extra slots. The bookrunner BIL said that while the co-manager group was small the Dutch, French and German banks would be assured that prices would be kept stable during the primary period.
BIL said that the hybrid issue had been formulated in response to client demand from its and CCB's network and premarketing had sounded out other possible buyers.
"We have been experimenting with the structure in December and January with zero coupon offerings tied to the performance of the Bel-20 and Dexia stocks," said the bookrunner.
Those issues were not widely syndicated, with ABN Amro, Crédit Agricole Indosuez and Bayerische Landesbank again acting as co-managers.
Such small selling groups are entirely consistent with the practicalities of arranging and marketing such a bond, agreed another Belgian banker: "To syndicate this deal broadly would be difficult to work as it takes a long time to market the bonds in volume to our retail customers."
The last time a deal like this was broadly syndicated was in November 1996 when BGL and Generale tried to rekindle the market in index-linked bonds. At the time placement was reported to be slow -- largely due to the difficulties in explaining the structure to retail investors that preferred simple-to-understand plain vanilla paper.
Previously index-linked bonds had been seen fairly regularly in the Luxembourg franc market. However, because of the difficulties of marketing them they were typically of around Lfr500m to Lfr1bn in size.
The introduction in January 1995 of a minimum Lfr2bn issue size for a Eurobond to be marketable to Belgian investors halted the sector in its tracks. Since then there has been the one issue for Genfinance and four deals led by BIL -- all for Crédit Local.
This week's six year deal for Crédit Local offered investors a punt on the performance of Swiss shares. There is a cap of 170% and a floor at par so investors need not worry about losing their capital. This is the first time that the index-linked structure in the Luxembourg franc market has been used for Swiss stocks.
"Although this deal is for their network, BIL and CCB should be congratulated for pushing the limits of the Luxembourg franc sector wider," said another banker. "It does them credit."