"It's almost a dictatorship run by the rating agencies. Every time they make a move the market reshuffles to make room." This is a description of the Euro-MTN market by Tarik Senhaji, head of MTNs at SG. He continues: "Some issuers may think the agencies' opinions are becoming too important, and so decide not to play the game." SG is a dealer off a programme for one such issuer. Louis Vuitton Moet Hennessy (LVMH) signed its euro2 billion ($1.74 billion) Euro-MTN facility in May this year and is the only non-rated French corporate in the market. "We are not rated and have no plans to get rated," says Olivier Seux, funding manager at LVMH. This might be over-confidence or an accurate and realistic analysis of the luxury goods company's potential in the market. With outstandings of $305.83 million in the four months since signing, according to MTNWare, it has had no trouble placing paper so far. But the market is becoming more credit sensitive every week, and pressure to conform is building. Unibail, the French property company, also signed this year and has issued $327.88 million. It has an A- rating from Standard & Poor's. Philippe Risso, head of treasury at Unibail, says: "It is inevitable that any non-rated issuers in the corporate market will have to get ratings soon." LVMH issued a S$100 million ($57.79 million) debut bond a month after signing. Five euro trades have followed and although the borrower has issued less than most French corporates in 2000, the treasury is quite satisfied. Seux, at LVMH, says: "We had no roadshow and no big benchmark inaugural. We relied on our dealers, on our name recognition and on the international press for publicity. The programme offers us a very attractive funding procedure. We make most of our trades at the short-end and so far it has worked very well." Despite his concerns about a market driven by rating agencies, Senhaji, at SG, which is also a dealer off LVMH's French CP programme, thinks non-rated issuers are cutting themselves off from a significant number of investors. He says: "There is a whole investor type, such as large fund managers, that you can't access if you don't have ratings. But we have to understand that issuers have internal requirements, and both dealers and investors have to work within these parameters." LVMH's programme stands out for another reason. It is one of only six to be governed by French law. Deutsche Bank is arranger off three of them, one of which is LVMH's. Emmanuelle Bonneau-Petelle, French corporate origination at Deutsche Bank, thinks the governing law makes no difference to the quality of the programme. She says: "The main difference between French and English law is the form of the notes, which are dematerialized under French law and which cannot represent a global trade. But as the French clearing system Sicovam has links with other European clearing systems, the form of the notes is unimportant from a market point of view." Deutsche Bank also arranges five other French corporate programmes, and 45 corporate programmes worldwide. Seux, at LVMH, says: "Competition does exist between issuers but it is not due to having the same arranger. Deutsche Bank has promoted the most programmes under French law and that is why we chose them." He adds: "Investors are mainly attracted to the image of LVMH, especially in Asia, and we are now very keen to move into the Japanese and Hong Kong sectors." Moving into Asia, where the majority of LVMH's products are sold, should be easy. Investors will be attracted to its brand names such as Christian Dior, Givenchy and TAG Heuer. Senhaji, at SG, says: "To move into Japan and Hong Kong it's best to target niche markets such as the retail sector or small regional investors." But he is aware of the increasing competition. He predicts: "Sooner or later all French corporates will be involved in MTNs, it's just a matter of time and resources." Casino and Total Fina Elf both have programmes due to sign and Bonneau-Petelle, at Deutsche Bank, thinks another three or four French corporates may join in the next 12 months. And existing corporate programmes may have bigger roles to play in their issuers' funding plans. Risso, at Unibail, says: "The MTN programme represents roughly 10% of our funding at the moment, but this could easily rise to 30% if it was required." This is why ratings are becoming a crucial part of an issuer's market image. There are several reasons for not getting a rating. Issuers may fear being rated too low, or that future acquisitions may lead to a downgrade. Bonneau-Petelle, at Deutsche Bank, explains LVMH's decision to buck the trend. She says: "They are a fast-moving company and I guess that they don't want to be dependent on the agencies' rating moves and opinions." But she is also concerned that LVMH's lack of ratings in the long-term may limit their chances for expansion. She says: "Of course we want them to get ratings. They have an A-2 short-term rating from Standard & Poor's that allows one-year private placements, but as ratings become more important it is tougher getting longer-dated issues done."
September 08, 2000
