Europe may be well on its way to unification, but laws governing Euro-MTN programmes are not becoming as uniform as the market thought they would. English law still dominates, but surprisingly some issuers are now choosing their own domestic laws. Fourteen French issuers joined the market last year and six chose French law to regulate their facilities. So why do they choose French law? In practical terms there are few differences between the capabilities of programmes governed by the two countries' laws. But some French corporates choose French law because it means consulting just one set of lawyers instead of French and English ones. LVMH set up its euro2 billion ($1.87 billion) Euro-MTN programme last May and the company's treasurer, Olivier Seux, says: "The statutes of our company are under French law, so in terms of internal authorization, it is more consistent." But there is a much more pressing legal concern for the French issuers right now. Since December, all bonds and notes listed on the Paris stock exchange have had to be translated fully into French. This is an obstacle for many of the French issuers that issue their documents and prospectuses in English - the language of the international markets. The decision was taken by France's supreme administrative court, the Conseil d'Etat, on December 20 2000 and it forces the Commission des Operations de Bourse (COB) to reject any documents not written fully in French. It follows a case brought by lawyer and French language purist, Alain Genitteau, who objected to documents in English and claimed that these contravened the Toubon French language law of 1994. But the decision is not popular with French issuers and many were surprised. Some issuers are translating their prospectuses and programmes - a lengthy and costly process. One issuer says the price of translating and certifying an MTN programme is about euro30,000. But others are avoiding the Paris exchange altogether and are listing their trades in Luxembourg. Dan Lauder specializes in debt capital markets at Allen & Overy in Paris. He says: "The Paris stock exchange has seen significantly reduced volumes of deals going through the French market, triggered by the new French language requirement for public offer documents in France. The effect has been to increase the costs significantly and to scare off foreign (and even some French) issuers." And reactions from French issuers show that they would much rather continue to work in English. Seux, at LVMH, says: "The Conseil d'Etat's decision was not popular among French issuers and many were disappointed. At the next updating we might translate our facility into French. It's an extra cost we did not anticipate when we set up the programme." Not all feel strongly against the newly enforced ruling, but it marks a time of change for the French market. Jean-Luc Petitpont, head of long-term funding at Dexia Group, says: "We were surprised by the Conseil d'Etat's decision, but no one was really against it. Things are going to change. The translation is done mainly for the benefit of the retail network, but for the time being we are translating all documents." But although those issuers with programmes set up under French law may find it easier to translate the documentation, there are some aspects of programmes governed by French law that could be seen as disadvantageous. For example, some Asian investors are disinclined to buy notes governed by an unfamiliar law. And not many people know that certain structures, such as equity-, fund- or index-linked notes, can cause difficulties for French issuers. Lauder, at Allen & Overy, says: "This is because it is necessary (if the product is to be listed in or offered to the public in France) for them to comply with the local market requirements relating to 'complex bonds'. Normally in such cases there will be a requirement for principal protection to avoid the investor receiving less than 100% of his initial investment." On top of that, the origination process can take longer and can be more expensive. Casino signed its euro2 billion Euro-MTN shelf last September and Regis Taillendier, at Casino's treasury, says: "The Euro-MTN was historically designed under English law, so there was an extra cost for setting it up under French law. We paid about 10% extra to set up the programme." Thomson-CSF (Thales) set up its euro1.5 billion global MTN programme in October last year. But it chose English law because it wanted to set up the programme quickly. Florien de La Comble, corporate financing director at Thales, says: "There are fewer existing examples of programmes under French law and so it takes more time to organize, because it is something new." But for many French issuers domestic law makes sense. Casino's Taillendier says: "We're a French corporate, so when it comes to issuing we are a bit more comfortable with French law. And the banks we asked for advice said most investors would not care much if the programme was governed by English or French law." And one advantage is that obligations foncieres can only be issued under French governing law and cannot be sold under an English law Euro-MTN programme. Cedric Burford, senior associate, debt capital markets at Clifford Chance, says: "The only way to issue an obligations foncieres is under documentation governed by French law."
February 02, 2001
