Latin sovereigns focus attention on euro debt

  • 01 Feb 1998
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It is not just European borrowers which have accessed the euro market. Latin American sovereigns, which in recent years have come to rely on European investors - in particular retail - in currencies such as the Deutschmark and lire, are trying to ensure that these crucial investors are familiar with their product in euro at the earliest possible stage.

The first Latin sovereign to issue in euros was the United States of Mexico, which launched a Eu400m seven year deal via Paribas and SBC Warburg Dillon Read in September last year.

This year, the Republic of Argentina has followed up with a Eu400m five year issue, led by SBC Warburg; and the Federative Republic of Brazil issued a Eu500m five year bond, with Paribas and SBC Warburg again at the helm.

But does it make sense for emerging market issuers to launch euro denominated deals? When Argentina launched its five year euro with a coupon of 8.75%, it could have launched a Deutschmark issue at the same maturity with a coupon of 8%. In effect, Argentina paid 75bp more than it had to.

Some bankers are not sure that it does make sense. "Investors who have been buying Argentina Deutschmark paper - retail investors - still want to buy Argentina," says one.

"But they won't pay the same for it in euro as they would for a Deutschmark bond. Argentina can raise DM3bn a year in Deutschmarks alone at very aggressive rates. When the Deutschmark becomes the euro, those investors will not suddenly go away."

The motivation for Argentina therefore, and other Latin sovereigns, is the same as for European issuers in the euro: to broaden distribution, and to make a statement.

"The emerging market sovereigns have exactly the same attitude," says the banker. "They feel that they need to be seen in the euro market, and there is no particular harm in that. But it needs to be weighed up against the extra cost."

It is by no means a unanimous view. Manfred Schepers, global head of debt capital markets at SBC Warburg Dillon Read, says that euro issuance creates a cleaner spread for the issuer than in core Euro-currencies.

"Emerging market issuers which come to the euro market are getting a secondary trading level that will stay better than in Deutschmarks," says Schepers.

"In Deutschmarks, for example, they have the complication of redenomination and a slightly different investor base, and yields are currently slightly higher in euro than in Deutschmarks. But if they are willing to pay a little to do euro, then they access an investor base which is growing and one which will provide a more consistent benchmark."

The euro has also offered Latin borrowers the opportunity to launch high profile, successful deals at a time when access to other major markets has been prohibited by uncertainty surrounding the Asian crisis.

Argentina's issue, for example, was increased from an original Eu300m - and is credited by many bankers as kick starting the European investor base for Latin borrowers and giving confidence to investors to take on other issues.

The proof came less than a week later when Argentina followed up with a DM1.5bn 10 year bond lead managed by Dresdner Kleinwort Benson and Morgan Stanley Dean Witter - which itself was increased from DM750m.

This week it returned to the European currency arena, launching 10 year bonds in French francs and Dutch guilders via Morgan Stanley Dean Witter - for Ffr1.5bn and Dfl 500m respectively - which are fungible with the Deutschmark issue.

Brazil's deal also generated substantial demand and was increased, from an initial Eu250m to Eu500m. Bankers said that the deal marked a first for Latin issuers in the euro, as it attracted substantial institutional demand. EW

  • 01 Feb 1998

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 159,441.15 688 8.06%
2 Citi 156,412.44 629 7.91%
3 Bank of America Merrill Lynch 128,902.57 511 6.52%
4 Barclays 125,463.27 484 6.34%
5 HSBC 102,014.24 510 5.16%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Bank of America Merrill Lynch 12,891.73 34 6.66%
2 BNP Paribas 12,285.93 60 6.35%
3 UniCredit 11,196.47 58 5.79%
4 Citi 9,580.75 37 4.95%
5 Deutsche Bank 8,945.44 35 4.62%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 5,254.13 23 10.63%
2 JPMorgan 4,558.16 26 9.22%
3 Goldman Sachs 4,259.98 19 8.62%
4 Citi 3,649.88 23 7.38%
5 UBS 3,602.23 16 7.29%