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German cable credit eKabel on Monday pulled back from selling a 10 year zero coupon bond as part of its debut offering, as weak markets pushed out pricing on its issue to levels previously unseen on a European high yield deal. The company, which tapped the market as part of its acquisition of cable assets from Deutsche Telekom, went ahead with two interest bearing tranches of Eu225m and $175m, lead managed by Merrill Lynch.

Brazil

CREDIT Suisse First Boston closed the Italian deal season with a blowout IPO for applications software provider Acotel that more than doubled in price in the first few days of trading. The Eu44m deal closed 10 times oversubscribed in the institutional tranche and 3.5 times covered in the retail tranche. A total of 833,000 shares were sold at Eu52 from a range of Eu45-Eu56. Shares began at Eu72 on Wednesday and closed at Eu86. Yesterday (Thursday) it closed at Eu121.8.

E.ON, the company formed from the merger of German utilities Veba and Viag, is to divest Veba Electronics Group in a complex leveraged buyout involving three buyers. A consortium led by Schroder Ventures and including US companies Arrow Electronics Inc and Avnet Inc will divide the group's businesses between them, paying $2.35bn in cash, including assumed debt.

E.ON, the company formed from the merger of German utilities Veba and Viag, is to divest Veba Electronics Group in a complex leveraged buyout involving three buyers. A consortium led by Schroder Ventures and including US companies Arrow Electronics Inc and Avnet Inc will divide the group's businesses between them, paying $2.35bn in cash, including assumed debt.

As of September 6, the International Securities Market Association (Isma) records Euro-CP trades through its electronic system, Trax (see MTNWeek, issue 147). This is a breakthrough for dealers battling to get European authorities to view the market as regulated. But change isn't happening fast enough. Valuable investors are locked out of the market and many funding sources are still out of reach. Regulators such as the French Commission des Operations de Bourse (Cob), restrict the amount of unregulated securities investors can hold. And as yet Euro-CP is unregulated. But Trax could change this. There are an estimated $50 billion in outstandings in the French domestic market (see MTNWeek, issue 101). If more French fund managers had unlimited access to Euro-CP, dealers predict the market could triple in size. Giles Chapman, head of Euro-CP sales and marketing at Citibank, says: "French regulators are hanging on to the rule that allows only 10% of a French investor's portfolio to be in Euro-CP. They want to protect their domestic CP market, which is large and liquid, and their domestic banks." The Euro-CP Association (ECPA) which includes 24 of the major Euro-CP dealers, has been struggling for years to break down certain interpretations of the EU directive, Undertakings for Collective Investment in Transferable Securities (Ucits), particularly in France. There is an updated draft of Ucits ready, but regulators are stalling. John Ford is chairman of the ECPA, and director, money market sales at Deutsche Bank. He believes using Trax is a major step forward. He says: "Problems still exist with the regulatory restrictions Europe-wide. We hope that reporting trades through Trax can be used as a negotiating tool and will speed up the deregulation process. The ECPA being part of Isma also helps the argument and gives it lobbying clout." Whether all dealers will report trades to Trax remains to be seen. There is a fee for the service and extra work is involved for traders. Some banks don't even have the system installed. But if trades don't all go through the system it will reduce the ECPA's bargaining power with regulators. Louise Mason, associate director, Euro-CP origination at Barclays Capital (Barclays), points out: "All members of Isma are obliged to report Euro-CP trades to Trax, so that includes all the main participants in the market." Mason, at Barclays, believes more progress can be made. She says: "Trax reporting won't have any immediate effect on the market, but it is a first step. While it's slow-going we would expect logic to prevail in the end against what is an anti-competitive stance on the part of some regulators." Trax has been recording fixed income and equity trades since 1989. As well as regulating markets and reducing risk, it can offer information. Chapman, at Citibank, says: "The system will provide transparency for the market and information about liquidity. It will offer precise figures about market activity which were unavailable before." And Tim Dickenson, head of corporate communications at Isma, says: "Trax minimizes operational risk in transactions by electronically matching both sides to a trade and sorting out any discrepancies between counterparties' understanding of that trade before it proceeds to settlement." Issuers have been pleased by Isma's announcement. Dieter Glueder, head of treasury, Kreditanstalt fur Weideraufbau (KfW), says: "This will help a lot of issuers and investors. In some senses there is a grey area surrounding the national regulations in different European countries. That fragmentation of the Euro-CP market should disappear." KfW's euro5 billion ($5.19 billion) Euro-CP programme is listed in Frankfurt so the issuer can trade listed paper, which is considered regulated by the Cob, as well as unlisted notes. But Glueder, at KfW, hopes that French regulators will alter legislation before real-time settlement occurs. He says: "It's a bit more work to list paper but it is easily done. This will only be a problem when real-time settlement is introduced as listing takes two days." The ECPA is pushing for real-time settlement but more problems lie ahead. Mason, at Barclays, says: "Euroclear now has real time settlement capability, as has Cedel, but until there is a link between the two, we won't have same-day settlement in the market. Both are striving to be the leading European clearing system but real-time Euro-CP settlement cannot work for either without cooperation." Ford, at Deutsche Bank, echoes this frustration. He says: "There is pressure from issuers and investors for same-day settlement. The market is evolving but not fast enough. It is difficult to make radical changes quickly in the settlement process." Trax could change attitudes towards Euro-CP, but dealers know market expansion won't be significant until all investors are free to buy paper. More banks are returning to the market and some dealers will have problems if the scope for business is restricted. Mason, at Barclays, says: "The question is whether the banks coming into the Euro-CP market are offering anything new. I have yet to be convinced. The market is set to grow. We predict $500 billion over the next two to three years. But the hindrance is the regulations and major growth is not going to happen until this is sorted out."

* Caixa Destalvis Catalunya

At a time when most capital markets experts are preoccupied with the immediate struggle to keep their heads above water, European Commercial Paper Association (ECPA) has taken the plunge and decided to link its future to the regulated securities markets. Last week ECPA, which represents Euro-CP dealers, voted to join Isma (International Securities Market Association), the regulatory body for the Eurobond market. If Isma accepts the proposal, a regulated and transparent Euro-CP market will result. The majority of Euro-CP dealers will report their trades to the association and operate under its trading framework. According to Deutsche Bank's John Ford, secretary of ECPA, this would boost the market. He says: "It's not an easy time for capital markets generally at the moment. So going forward, we need the lobbying clout of Isma and to be part of that machine. We want to be able to facilitate ECP sales where we can." The main aim of the proposal is to open the Euro-CP market to the money fund managers which are restricted in the amount they can invest in products deemed unregulated, as outlined in Undertakings for Collective Investment in Transferable Securities (UCITS). Louise Mason, manager, CP origination at Barclays Capital, explains that the move is designed to promote areas of potential growth. She says: "Our research shows there is already $600 billion-worth of money funds around Europe. For those fund managers to market themselves throughout the EU they must have UCITS status. This EU directive amounts to a European passport to do business but means they have to invest the bulk of their funds in regulated or listed instruments." It is the French CP market, with an estimated $50 billion in outstandings, that is the primary target for ECPA. The interpretation of UCITS by Commission des Operations de Bourse (COB) means Euro-CP is unregulated, and is therefore subject to a 10% investment limit by French mutual funds. Conor Gallagher, vice-president at JP Morgan, explains: "This clearly creates a competitive disadvantage for these investors. They are consequently prevented from diversifying their asset portfolios in the same way that their counterparts in other European countries are already doing in preparation for Emu." The border flattening which Emu will bring is obviously the driving force behind the initiative. Gallagher continues: "We want to get domestic investors into the international market by providing a liquid and transparent market that is run by professionals. An important part of that is having an independent database which is run by an independent regulator." If the Euro-CP product is regulated it will, in theory, be no different to domestic CP, post-Emu. However, Mason, at Barclays Capital, highlights the opportunities which could be created with a regulated product. She says: "The major Euro-CP dealers have established a diverse worldwide investor base, but the Euro-CP market may well turn out like Euro-MTNs, supporting more players who have only been active in domestic markets with specialist investor bases in their home countries." Further comparisons with the Euro-MTN market may also beg the question of whether this kind of regulatory framework could be introduced for Euro-MTNs via the International Primary Market Association (IPMA). For Euro-CP borrowers too, a programme which is seen as a regulated product in a liquid and transparent market will give them the flexible issuance capability they need in order to tap the wider investor base. Gallagher, at JP Morgan says: "On the liability side, borrowers who have traditionally relied on their domestic markets for funding, generally on a name recognition basis, are now obtaining ratings and establishing Euro-CP and/or Euro-MTN programmes. They are concerned about the potential lack of liquidity in an environment where investors will be diversifying asset portfolios quite dramatically." The decision to bring ECPA under Isma's umbrella has not yet been finalised, and much of its success depends on how regulation is defined by the relevant bodies. Generally, participants hope that after two years of work on the project, the initiative can be signed, sealed and delivered by the end of the year, in time for the Emu kick-off. However, this is by no means certain. Tim Dickenson, head of corporate communications at Isma, says: "Clearly, this proposal has the potential to open doors for growth in the Euro-CP market. Whilst discussions between ourselves and ECPA are still progressing, we are optimistic that we can make further progress in a short space of time." He adds that there are still some issues which need to be looked at, saying: "Work needs to be done within Isma at a senior level to enable us to bring the project to fruition and accommodate these instruments within our regulatory framework." Ford at Deutsche acknowledges that even if Euro-CP is regulated by Isma, this may not be enough to change the minds of groups like COB. He says: "We can't say for definite that we can change this but we do want to reduce the restrictions involved with buying Euro-CP. It should make it a more liberal and transparent market that is also deeper and more liquid. This is a very good thing for the market."

* Argentabank Luxembourg SA

Extendible commercial note (ECN) programmes could be the future for short-term debt. A product that can offer do-it-yourself liquidity to issuers could prove vital to a successful funding strategy at a time when disintermediation and consolidation dominate the market. American dealers are confident that ECNs can offer this on both sides of the Atlantic. Chris Kersey, head of global money market origination, at Goldman Sachs, estimates there will be close to 50 issuers of ECNs in America by 2000. He even suggests there will be issuance in the European market by the close of 1999. One ECN issuer says: "Its definitely growing. This is the way of the future. Investors will be providing the back-up rather than the banks." When awarding top-grade ratings, agencies require liquidity backup for CP programmes. Historically, banks provided this facility to issuers, but in the American market a shift is taking place. Due to consolidation in their industry, American banks are pulling out of providing this facility to borrowers. The extendible commercial note programme is one answer to issuer needs for easy access to cash. The first issuers of this product, in Autumn 1998, were Texaco, Hershey Foods and Disney. Ten corporates have extendible commercial note facilities rated in the American market and nine have issued off their programmes. The idea is steadily spreading in America. In excess of $3 billion-worth of extendible notes have been sold to investors since 1998. Cargill is a recent convert to the product. Its $1 billion programme kicked off on April 9, this year. Andy Reul, North American funding manager at Cargill, thinks the product is the most innovative one to hit the market in a decade. He says: "Through extendible notes we see the potential to expand our investor base, further penetrating into money market funds." The ECN product was devised by Goldman Sachs. It behaves in the same way as ordinary CP with the usual maturity of notes being 90 days. However, at issuance, the note has a built-in option, held by the issuer, enabling them to extend the maturity for up to 390 days from the original issuance date. Investors appear to be in a win/win situation. To date, no issuer has opted to extend. The buyer therefore receives a high premium and a good rate of interest for taking on a relatively small risk in the likelihood that the notes will mature on the date initially agreed. All issuers of this product in the American market are investment-grade corporates. But there is also strong economic incentive for the borrower not to extend the note. Any extension after 90 days triggers a repricing of the security into Libor and ratings-driven pricing, which would be significantly higher than normal CP rates. One borrower says: "We have to educate investors so that they realise that the likelihood of us ever extending the note is virtually nil. We would only ever extend in circumstances where the CP market effectively closed down to us for some reason." Kersey, at Goldman Sachs, believes there are benefits across the board with this type of facility. He says: "Everybody wins with ECNs. The issuer gets access to a new source of contingent liquidity in the form of money market investors, the commercial banks don't have to provide issuers with unprofitable backstop liquidity facilities and investors get an enhanced yield with no added credit risk." Kersey explains that ECN programmes will not replace CP programmes, but says they are a complementary product and make the CP market more efficient. The product suffered, in its early stages, when it should have grown the most. This was largely due to the crisis in the fourth quarter of 1998. Also, there was hesitancy on the part of borrowers and investors to accept a new product. There has been a substantial marketing effort to make this product work in America. Some initial trades have been subsidised by underwriters selling it flat or at a loss, since it is in their best interest to make it work. Hunter Brown, vice-president, JP Morgan, is confident the product will be successful, but says: "The market for ECNs is still in a very early stage. There is a learning curve for both issuers and investors." Some European CP dealers are less enthusiastic about the new product and do not believe conditions are right in the European market yet. However, John Delaney, executive director, Goldman Sachs, London, is confident. He says: "The European market is obviously smaller and less sophisticated than the US market, but ECNs will come to Europe. Especially with Emu, the trend is towards a more homogeneous market. Undoubtedly we will see issuance in the European market." It appears that two trends have encouraged the product's growth in America. Consolidation has left banks with reduced capacity. They are also reluctant to provide liquidity services because these services give sub-marginal returns. So, issuers have been forced to go directly to the money markets to look for greater liquidity. Similar trends are already being seen in the European market. Andy Reul, at Cargill, believes this product will develop globally. He says: "We will assess the acceptance of extendible commercial notes in the US market and may consider issuing the product in Europe at a later date."

La Poste, the French postal authority, will sign a euro3 billion ($2.74 billion) Euro-MTN programme in September. Deutsche Bank has won the mandate that will be its twentieth arrangership from the 84 new signings this year. The facility will be used to fund strategic acquisitions by La Poste amounting to Ffr7 billion over the next three years and will also help refinance Ffr10 billion-worth of debt. La Poste has existing ECP and French CP programmes too, but the new programme will annul these. The issuer wants to avoid direct market intervention and has appointed its subsidiary, AC Poste, as a market advisor off the facility. Philipe Bajou, chief executive officer at AC Poste, says: "Our role is to manage investor deposits and to study the market. We will ask the dealers to issue notes when we believe the market is ripe." AC Poste is also setting up a French CP programme to assure the liquidity of Groupe La Poste. The dealers are the arranger, ABN Amro, BNP Paribas, Salomon Smith Barney, Morgan Stanley Dean Witter and UBS Warburg.