Given the current confusion which the market is experiencing, both post-Asian crisis and pre-European Monetary Union (Emu), it seems that some market participants resemble tourists without a map. That the number of surveys circulating the market is unusually high can be attributed to the current state of nervousness. And although MTNWeek's survey asks many questions which require issuers to take a well reasoned guess, it is comforting to have a guide on the road to enlightenment. Investors & currencies Participants in last year's survey expected the bulk of demand for their paper to come from Japan. The Asian crisis has had a helping hand in putting paid to this, and issuers coming to the market this year are expecting to see stronger demand coming from Europe than in previous years. Of course, this is linked to Emu. Since the Asian crisis, issuers have learnt that it is too risky to rely on one market alone. Prior to the crisis, many issuers took the same view as MTNWeek when, this time last year, it reported: "There is no reason to expect Japan's affection for MTNs to end in the near future." Recent events have ended this misconception. Those borrowers who did not before, now know better. Participants in the MTN market survey expect to place greater emphasis on European currencies in 1998 than they did. The popularity of southern European currencies, particularly lira and escudo, will probably rise, continuing what has become a noticeable trend over the last two years. Some of the other European currencies which are expected to see good appetite are Swiss francs, sterling and the Benelux currencies. Although not a European currency, demand for Canadian dollars is also expected to increase as the failure of yen, relative to expectations, leads more borrowers to search further afield for value. Many of the supranational borrowers which participated in the survey have predicted a growth in demand for the more exotic currencies, although it is worth noting that they tend to be more active in the public bond market than in non-syndicated private placements. Polish zloty, Greek drachma, Czech koruna and South African rand are some of the currencies which have been suggested as receiving more interest in the coming year. In the mean time, a large number of borrowers are still showing interest in yen and the dollar looks set to continue to be a driving force. Non-Japan Asia is also tipped to be popular. MTN funding Although outstandings for non-syndicated MTNs are rising and in 1997 they totalled $210.6 billion as opposed to $150.7 billion in 1996, Figure 1 shows that borrowers are still not using an MTN programme to fulfil all their funding needs. Perhaps the MTN programme has gotten itself too opportunistic a reputation to be considered for such unglamorous work as core funding? According to the survey, over the next year an average of only 38.5an issuer's funding needs will be met through an MTN programme. This is approximately equal to last year's 40 Whether the Asian crisis has had the effect of dampening issuers' demands for funding through MTNs in 1998 is unclear. Traders have been complaining that due to the crisis, there was a dearth of deals in February but the figures do not paint as black a picture. In February 1998 there were 542 non-syndicated MTN issues totalling $17.4 billion compared with 686 issues totalling $17.8 billion during the same period in 1997. It is possible that some issuers have put their plans to fund in MTNs on hold until the situation in Japan becomes more stabilised. Yet with programmes like that of CADES' being signed, off which CADES hopes to achieve all its funding targets, borrowers' attitudes may change. Borrowers may be encouraged to use MTNs less opportunistically and more for core funding. Calls from dealers The number of issuers who said they do not receive enough calls from dealers is surprising. It has gone up from 16o 22.6ince last year's survey. That said, an enormous 145 programmes have been signed since issuers were last polled. Maybe the sheer number of borrowers who now have an MTN programme means it is difficult to call all of them. The number of issuers surveyed who receive too many calls is significantly smaller than last year. Given the current vogue of consolidation in the market, can we expect to see dealers spread increasingly thinly over a growing market? Issuers & dealers This time last year, MTNWeek predicted there would be a sweeping trend for reverse enquiry. Yet looking at Figure 2, this does not seem to have been the case regardless of the fact that some big names, such as the World Bank, dropped their dealers last year. Ten percent of issuers carry out less than 20their deals through their dealer group. Last year, 15issuers polled did less than 20hrough named dealers. There are still borrowers who do 100their business through the dealers named on their programme document. What should also be noted is that for a borrower to be able to rely on reverse enquiry alone, the most important qualification is an outstanding name. Salomon Smith Barney heads the table of Top 5 reverse enquiry dealers for the second year running, winning 19.35votes compared with 9.9ast year. Last year Japanese firms dominated this category. Presumably they have been hit by the continuing fall-out from the ever significant Asian crisis. This year Japanese banks accounted for 25the overall vote but only one, Nikko, appeared among the top five with a 1igher vote than previously. Thirty two banks in all received votes in the reverse enquiry category, including names as varied as First Tennessee, Kokusai Europe, Svenska Handelsbanken, Wako and Zenshinren. Given frequently voiced concerns over the move towards bigger and fewer banks, it seems the less well known names still have much to offer. The most innovative dealer is Morgan Stanley Dean Witter, which is to be expected since it won the title last year. Also retaining its position, albeit in second place, is Merrill Lynch. Salomon Smith Barney is a new face in this table and has been popular with those surveyed this year, being the only bank to appear in the top five in all three categories. Merrill Lynch has again been voted the most active dealer group dealer, repeating last year's achievement. The bank featured as a dealer on a total of 76 MTN programmes signed last year. Salomon Smith Barney appears in the table of Top 5 dealer group dealers which does raise a few questions since it is absent from the League tables of top ten programme dealers and arrangers. Looking at the tables as a whole, the number of US banks which feature is still as high as last year, if not higher, helped by the inclusion of Salomon Smith Barney. Paribas is an eye-catching name to appear in two of the tables. Last year it just missed the top five in each category but was included in the Best of the rest. Featuring in this year's Best of the rest are Deutsche Morgan Grenfell, IBJ and UBS. Where will they come next year?
July 28, 2000
