Asset-backed borrowers, corporate issuance and growing money market funds - these are just some of the trends which emerged from MTNWeek's CP dealer survey which reflect a general tone of optimism and buoyancy in the market. Outstandings have topped $215 billion according to CPWare and banks have flocked back to the market in the last year believing there is much potential still to be realized. But many traders also highlight the frustration caused by regulations in Europe which restrict investors and the lack of progress in same day settlement, both of which are holding back real growth. GROWTH AREAS MTNWeek's first ever Euro-CP survey polled leading CP dealers from across the market. Many issuer nationalities were named as growth areas including Japan and tax havens, but European borrowers come out in front with 35.7% of the vote. Although 21% of dealers specifically picked out France as being a major growth area. Following in second place with 28.5% of the vote is the US. Despite credit being mentioned as a prominent trend in the market this year, many dealers think a true credit market in Euro-CP is taking longer than expected to develop. Over 60% of dealers polled say A-1/P-1 rated borrowers will be the sector to see the largest growth in 2000, see fig 1. Although some point out that the A-2/P-2 rating may see greater growth in terms of percentage of the market. Asset-backed programmes received 46% of the vote for growth in issuer type, followed by corporates with 40% and financials with 13%. THE MARKET IN 2000 Dealers selected a wide variety of trends which they believed would be evident in 2000 from more corporate signings in Europe to changes in the investor base and even complete disintermediation of dealers. And more than one depressed dealer said the trend this year was a lack of trends. Growth in the asset-backed sector was named most often with 18.7% of votes. Ten asset-backed programmes have been signed since January 1999, according to CPWare. And 15.6% think developments in web based trading will be the strongest feature in the market. Although in response to the question: How important is the web for Euro-CP trading? only 38% say it is very important. The rest of the vote claim it is not yet important. One dealer says: "Auto execution is not that practical and therefore not that important yet, but online and real time offerings are very important." INVESTORS Responses to the question of changes to the investor base emphasized one of the biggest problems facing the market. A frustrated 26.6% of traders said they could not foresee any growth or change until deregulation occurs in Europe, particularly the interpretation of the Ucits directive in France, Italy and Spain. The Euro-CP Association is working hard to bring about change and get Euro-CP recognized as a regulated security. Until this happens great potential for investment in the product from buyers such as the French money markets still lies out of reach. A more optimistic 20% of dealers predicted growth in the investor base including more funds looking at the market and the emergence of larger money funds through increased consolidation. And 13% believe there will be an increase in demand from retail buyers. ISSUERS KfW came out as the firm favourite in the category for issuer which has made the best use of is Euro-CP programme in the last 12 months. With over 28% of the vote, the German state borrower received praise from many of the top dealing houses. One trader explains why he thinks KfW is the obvious choice: "For having over $6 billion outstanding, consistent pricing and providing regular pricing updates as the market moves," he says. British Telecom and Depfa Bank Europe came in at joint second place with 16.6% each, see table 1. And other borrowers getting a mention for their sound funding strategy were Pfizer, Royal Bank of Scotland and Jenoptik. Jenoptik is the first borrower to sign from the former East Germany. GECC stormed into the lead in the now dreaded category of most difficult issuer, see table 2. But it appears that the worst thing it is guilty of is being too sophisticated. "GECC issues almost exclusively direct - you can't get more difficult than that," says one unhappy trader. However, no other borrower got more than one mention suggesting that each dealer's bad experiences are unique. Corporate issuers came in for a roasting. Total, Telenor, Thames Water, Volkswagon and Peugeot were all slated. One dealer relished the chance to have a whinge: "The worst issuers are those who are inflexible to investor requests for odd dates or sizes." DEALER COMPETITION An overwhelming but perhaps unsurprising 90% of those polled say that the market is not growing at a sufficient rate to support all the dealers trying to grab market share. And with two re-entrants in the last 12 months, Credit Suisse First Boston and Morgan Stanley Dean Witter, and Merrill Lynch keen to dive into the market at the right opportunity, competition looks set to heighten. Over 20% of dealers said in the survey that there was a worrying trend of banks cutting fees in order to gain new clients. One dealer says: "The market just isn't large enough to support all the dealers. It introduces bad market practice as dealers look to buy market share." REGULATION AND SETTLEMENT The strongest theme to emerge from the survey was dealers' hope for deregulation in Europe and progress in same day settlement. Thirty per cent of those polled say the most disappointing aspect of the market this year is the lack of growth. The majority put this down to the major hindrances of regulatory and settlement problems. One exasperated dealer says: "Until Euroclear and Clearstream work together there won't be any movement forward, the market will be static." Domestic European funds hold the key to expansion along lines which could even rival the US, but without deregulation this will be impossible.
December 15, 2000
