South African rand

  • 16 Oct 1997
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* Commerzbank AG

Rating: Aa2/AA-

Amount: R100m

Maturity: November 7, 2000

Issue price: 101.355

Fixed re-offer price: 100.23

Coupon: 14.25%

Launched: Tuesday October 14

Lead mgr: TD Securities

Bookrunner's comment:

With growing expectations of an interest rate cut in South Africa by year end we felt there was scope to bring a small retail targeted issue to market to give investors the opportunity to lock in yields at current levels.

We also felt that Commerz was the right borrower to bring an issue for -- as it has a long established track record of successful deals in the Eurorand market and enjoys good name recognition with investors across the DM bloc.

The choice of maturity was based on the relative lack of supply at the three year part of the curve compared to the five year area where there has been a lot of issuance recently -- and the fact, in our experience that three year deals clear quicker than five year ones.

In terms of the deal's structure we opted for a shorter than usual three week selling period before the payment date to encourage investors to come into the deal at an early stage and so give some added positive initial momentum to the transaction.

We kept R58m of the deal and of the R42m we syndicated we have only had R5m in flowback from the street -- a good sign that other people are seeing demand for the issue as well.

In the first couple of days we have sold around R17m of our allocation which is a good result for a retail-driven transaction, with paper going to a mix of German and Swiss retail and retail-type accounts.

Market appraisal:

"...we expect that this will perform well -- it looks cheap compared to the outstandings in the market and Commerz is name that is popular with German and Benelux retail investors who are keen buyers of Eurorand product."

"...we thought that this was fine -- it was priced in line with the market and the 14.25% coupon should prove popular with investors.

Another fact in the deal's favour was the choice of tenor -- there has been a lot of five year supply of late but there is a lack of product at the three year part of the curve where this deal came.

We had no problems placing out R1m ticket, which we sold to a Swiss retail account."

"...this offers a good coupon which offers a good yield for a good name which always goes down well with our clients in Germany -- so we had no qualms about taking a position in the deal.

Indeed, we tried to get hold of more bonds in addition to our R1m take but there were none to be had.

Commerzbank has a successful track record in the rand market and the 14.25% coupon was more than sufficient to compensate for the fact that Commerz is lower rated than a lot of the other borrowers tapping this market."

Market commentary

Compiled by Brendan Goffinet, Hambros Bank Ltd, London. Tel: +44 171-865 1087

The South African market continues to strengthen -- holding on to recent gains when most other markets have been falling -- and taking strength from Treasuries during recent rallies. Over the week, yields fell more than 10bp across the yield curve. The benchmark R153 bond was trading at a yield of 13.78% today (Thursday) from 13.97% a week earlier.

The only domestic figures announced this week was the producer price index, released on Tuesday. The 0.1% rise in August pulled the annual rate to its lowest level for 15 months. At 5.9%, this annual inflation figure was lower than the median market forecast of 6.5% and provides additional evidence of the benign inflationary environment in South Africa.

That lends support to arguments for an interest rate cut by the end of this year. This figure helped set a positive tone for the rest of the week when the market rallied further on the back of favourable US data (including CPI and the Philadelphia Fed index).

The rand lost ground on the back of rate cut speculation following the domestic data. From R4.652/$ on Monday, the rand was trading at R4.6855/$ on Thursday. Against the Deutschmark, the rand lost around 2.5 cents, falling to R2.6836/DM on Thursday. *

  • 16 Oct 1997

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Bookrunners of all EMEA ECM Issuance

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1 Goldman Sachs 2.07 11 10.42%
2 BofA Securities 1.40 6 7.01%
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