Last week's issuer survey saw borrowers call for more transparency in the issuer-dealer relationship. The fifth annual dealer survey gives the dealers their chance to have their say. The best and worst issuers in the MTN market are named, as are the predicted growth areas. Dealers also identified the structures they are most keen to use. The results show that dealers are very happy with the way the market has performed in the past 12 months, but are also wary of the many challenges ahead. CURRENCIES Euro is by far the leading currency tipped for major growth in the coming year. It came top in last year's poll (see MTNWeek, issue 183) and its lead has grown to 24.14%. Its closest rivals are Hong Kong dollar, Polish zloty and yen. Polish zloty was tipped to fall by dealers in last year's survey. It has confounded those expectations and become a strong favourite this year, with a 10.34% share of the vote. The result confirms the recent upbeat performance of the zloty, which led one dealer to recently comment: "The zloty is strong and shows no sign of weakening." STRUCTURES Dealers predict that credit-linked notes will see the biggest growth in the coming year, despite proving slow to catch on in recent times. In our 2000 dealer survey the structure polled 0.63% in this category, compared to 34.78% this year. But credit-linked notes were wrongly predicted to grow substantially in our 1998 survey. Whether they will finally make the breakthrough this year remains to be seen. The number of structured trades has increased slightly on last year's results. But there remains a continuing preference for plain vanilla notes in the MTN market. When dealers were asked how their business has been split between vanilla and structured notes in the last year, structured notes polled 47.53%, up 4.21% on last year. Despite this growth, dealers would still like to see a greater volume of structured business. One dealer says: "There has certainly been a low appetite for structures this year," says one dealer. ISSUERS Dealers have once again chosen SNS Bank as the issuer that has made the best use of its Euro-MTN programme in the last 12 months. One dealer says: "It competes in a highly competitive sector - mid single-A - and yet has still managed to establish itself in just a few years after being practically unheard of outside the Netherlands. It has built up an incredibly strong investor following." Another says: "Its success is largely down to its flexibility. It is also very pro-active in continuously taking its programme on roadshows." Linde came second in the poll and the result should be especially satisfying to the German corporate as it only signed its euro4 billion ($3.51 billion) programme in April 2000. One dealer says: "Linde's main strength is that it is always clear about what its targets are. We wish more issuers would do this." But Abbey National received fewer votes than last year. It falls from second place in last year's poll, with 10.71%, to just 4.55% this year. Svensk Exportkredit (SEK) has retained its position as the issuer most responsive to structures. One dealer says: "SEK is always willing to consider any structure that we throw its way. It has done structures that had never been done before." Another trader says: "The range of currencies it issues in and the professionalism and quick response times it employs are its primary qualities." Closing the gap on SEK is Banque et Caisse d'Epargne de l'Etat de Luxembourg (BCEE). BCEE raised the limit off its Euro-MTN programme from $4 billion to $6 billion in February last year and this seems to have prompted an even more diverse range of structured trades. "It is very receptive to new ideas and always carries out its business in a very relaxed manner," says one dealer. Another dealer comments that BCEE's market knowledge is the key its success. He says: "It has probably the strongest overall understanding of the MTN market of any issuer and is always very fair to dealers." Dealers also voted in the category that no issuer wants to be mentioned in. Once again Diageo was voted issuer most difficult to work with, but only by a marginal vote. It received 14.29% of the vote, an increase on last year's result. One dealer says: "Diageo is simply not flexible enough. It is slow in its responses and posts inconsistent levels." There was advice given to issuers on what they could do to improve the process of closing a trade. Dealers voted that quicker response times and consistency on levels were keys to improvement. One dealer called for: "Increased flexibility, so that dealers can change coupon, size, calls or even structure right up to the time of a trade." A more ambitious trader says: "They could wine and dine the dealers a lot more!" GROWTH AREAS The corporate sector of the Euro-MTN market is again given the thumbs up by the majority of dealers. With 88.24% of votes, corporates have been given an overwhelming vote of confidence. One dealer explains the result. He says: "There are still many untapped corporates out there." For the second year running, triple-B rated borrowers are voted top of our ratings poll of issuers with a lot of potential. "There is a huge number of triple-Bs currently flooding the market - largely in the form of utilities," one dealer says. The US is the region expected to grow most in the next 12 months. After polling just 4% in MTNWeek's dealer survey in 2000, the US tops this year's survey with 28.57% of the votes. Europe joins the US in joint-first place, but drops from the 79% it polled last year. INVESTORS The survey also asked dealers how they thought the investor profile would change over the next 12 months. One dealer predicts: "There will be a return to credit quality as investors become more concerned with results." This view is echoed by many others, who say they expect more credit buyers, higher credits and heavier structures. Another dealer thought investors would have less say. "Issuers will achieve an even greater ability to dictate terms in the coming year," he says. Changes are also afoot for the Japanese market. One leading house says: "We foresee a shift away from Japanese investment trust managers (ITM), towards longer-dated demand." A few dealers predict some growth in structured issuance, in contrast to the recent dominance of plain vanilla notes. One dealer says: "Investors should have a much greater appetite for structured notes as rates start to fall." THE MARKET IN 2001 Despite the many success stories of the past year, dealers still found many aspects of the market disappointing. "The biggest disappointment of the year for us has definitely been the lack of structures," says one dealer. Other disappointments cited were the lack of long-dated vanilla placements, too much short-term demand, investor bias towards public deals, yen basis costs and volatility in spreads. One dealer simply says voicemail was his biggest disappointment. Dealers also identified what they perceived to be the biggest challenges in the year ahead. Many are concerned about the weakening of the global economy. One dealer says: "There is the potential for issuer apathy and a reluctance to move in the face of economic slowdown." Another dealer believes that the success of the MTN market has actually created many new challenges. He says: "Simply continuing the level of growth in the MTN market over the past three years is a big enough task." Because of this growth, another recognized the increasing difficulty in just "recruiting enough people to the MTN desk."
May 18, 2001
