The MTNWeek issuer survey 2001 asked the market's active borrowers to air their opinions on the market trends and dealer-issuer relationships. Over 40 borrowers spoke openly about the market's ups and downs in the confidential survey. MTNWeek asked how important the Euro-MTN programme is as part of a treasury's funding operation, and which sectors issuers expect to offer the cheapest funding this year. Borrowers gave frank suggestions on how the dealer-issuer relationship could be made more efficient. Most issuers call for market transparency, but few claim to use internet trading sites as part of their MTN funding. The survey asked which dealers are active in reverse enquiry and structures and which ones could improve their performance. Many expected yen to provide some cheap funding opportunities, despite widespread disappointment in the Japanese economy this year. Issuer-dealer relationship Dealers are becoming increasingly reliant on their dealer groups, with two-thirds of issuers doing more than 60% of their trades through the appointed dealer panel. And most issuers are happy with the number of calls they receive from dealers. Two-thirds of issuers said they receive enough calls from dealers, while one-third would like to be remembered more often. Some issuers complained that too much attention is given to big issuers and the less-frequent issuers are sometimes forgotten when it comes to phoning around. Approximately one-third of issuers polled called for more transparency in the market. One borrower said: "There needs to be more communication - this would give us a better feel for structures and prices. It would also make it easier to match offers and demands." Others called for better investor relations and several said they would benefit from more open dialogue with dealers. "We need more feedback in terms of levels, so we know how we compare to others," said one issuer. And another comments: "More market overview information would be useful. Dealers could cover more investors, and be more open with levels." A handful of issuers said they would appreciate more calls from dealers, despite the majority being satisfied with the number of calls they receive. Some borrowers said that dealers could also afford to focus more on the individual issuer, and only put forward trades that meet the issuer's criteria. One said: "It would be great if they only brought in what we need to do - it would save a lot of time." The majority of issuers said that the internet does not feature in their MTN funding at all, which is contrary to the hype that surrounds internet trading sites. While it is used for execution of bonds, issuers of Euro-MTNs have not taken to the practicality of online execution. Although the internet facilitates the transmission of information on levels and spreads, very few borrowers admitted that they use the internet for this purpose. One issuer said: "A year ago I would have expected the internet to be far more important now than it actually is." The survey also asked which dealer the issuers are least satisfied with. ABN Amro received most votes in this category. It was just ahead of Merrill Lynch (the bank that took joint-first place in this category last year) and Deutsche Bank. Dealer performance Mizuho's MTN desk started working together on December 1 2000, after the merger of Fuji Bank, Dai-Ichi Kangyo Bank and International Bank of Japan. And already its work for reverse enquiry deals has won recognition in this survey. It has made a big impression on many issuers, receiving over 13% of the votes for most active reverse enquiry dealer. Nomura also made a comeback in this year's survey. It had second place in the 1999 MTNWeek issuer survey, but last year it failed to feature in the top five reverse enquiry dealers. This year it bounces back to joint-second position, as 8% recognized its reverse enquiry activity. It ranked along side Goldman Sachs and just ahead of Salomon Smith Barney. JP Morgan headed this table last year and has slipped to joint-sixth place. Deutsche Bank won most recognition for its structured business, ending Morgan Stanley's four-year reign at the top of this poll. Twenty-one per cent of the votes went to Deutsche Bank, knocking Morgan Stanley off the number one position for innovative structures. It has now slipped to joint-seventh position with Goldman Sachs and Merrill Lynch. Nomura didn't feature in last year's innovative structures table at all and it ranks on a par with Salomon Smith Barney this year. Issuers think Deutsche Bank also has the best market distribution - it received over 25% of the votes. And Deutsche Bank managed to scupper the competition once again in the poll for the overall most active dealer. Salomon Smith Barney, UBS Warburg (voted number one last year), JP Morgan and Nomura are also perceived to be active market players. Core funding Issuers are becoming increasingly reliant on their MTN programmes as a way of funding themselves. Over half of the issuers polled raised 61% or more of their funds off the MTN programme. This is a significant increase on last year's issuer survey result, which showed 37% of polled issuers raising over 61% of their funding off their MTN programmes. Currencies Issuers have high expectations when its comes to yen funding. Over 38% expect it to provide the cheapest funding in 2001, despite many issuers expressing concern over the Japanese economy and Japanese investor interest in recent months. Many issuers continue to have faith in euro - 27% voted it as the currency most likely to provide the cheapest funding in 2001. But issuers are showing a lot more optimism for yen and euro than they are for US dollar. The currency received just 10% of the votes. Sterling, Canadian dollar and Swiss franc received 12% of the votes. Market conditions and predictions Issuers have found different aspects of the market disappointing this year. The Japanese economy has not grown as some thought it would and some claim that lack of liquidity in the Japanese economy and lack of participation from the Japanese investors was a source of disappointment. And many report wider spreads and tighter swap spreads. One borrower says: "The spreads are quite wide, driven by too much supply of bonds and too much attention to big issuers." Issuers cited the lack of arbitrage in sterling, the relative performance of the triple-A borrowers and the focus on credit and pricing in the euro market as contributing factors to the difficult market conditions. The euro market has not lived up to many borrowers' expectations - the euro structured business has been sluggish and pricing in the euro market has been a source of continued disappointment. One dealer says: "Callables and structures have been disappointing - there have been a lot of calls recently." Another issuer says the volatility in the stock markets has been bad for their structured trades. And according to the issuers there are several challenges approaching the market in 2001. The Basle accord may well pose some obstacles. One issuer says: "It will be a challenge to handle the BIS regulation, because it will have a big influence on the pricing of financial and corporate bonds, starting in 2004. But I expect that pricing will be influenced much sooner than that - probably this year." Many issuers repeat the often-quoted subject of transparency and that the market must become more open. One issuer says: "We just don't know what the investors want." And another says that transparency is not made easier by the fact that there are so many new issuers coming to the market. He said: "Dealers need to price lots of new issuers coming to the market - borrowers can rely on ratings, but it is a heavy task for investors and dealers to take it all in and be transparent."
May 11, 2001
