Paper chase
The development of domestic capital markets within Central and
Eastern Europe is an important goal for the various development
banks active in the region. It is viewed as especially necessary in
the light of the succession of financial crises in Asia, Russia and
Latin America seen during the late 1990s, when emerging market
issuers found their access to the international capital markets
either prohibitively expensive or cut off completely.
Access to local fixed income markets is clearly desirable in such circumstances, and countries such as Poland and Hungary have already managed to establish fairly deep investor bases for shorter maturity offerings such as commercial paper. And longer tenors are now also appearing, a process which is being helped along by institutions such as the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB), both of which have been active issuers in a variety of currencies across the region.
Up to now the majority of EBRD and EIB offerings have been done on the Euromarkets, which has not only allowed them to raise funds for local projects but also to help internationalise the capital markets in the accession countries. But now the trend is to go one step further, and actually launch bond offerings on the domestic capital markets.
One of the first countries to benefit from these moves was Hungary, where the EIB has a domestic debt issuance programme that dates back to 1996. In April of 2000 the EIB increased the size of this programme to HUF50 billion, having already used up most of the original HUF20 billion program. CIB Securities arranged the latest offering, and is acting as dealer along with seven Hungarian banks.
?The development of domestic capital markets in Central and Eastern Europe is a key objective of the EIB,? explains EIB vice-president Wolfgang Roth. ?Our experience shows that domestic capital markets are a reliable source of long term funding in the relevant currencies. Our debt issuance programme in Hungary allows for the flexible issuance of bonds on the domestic market to satisfy the increasing demand from our Hungarian clients for long term loans in forint.?
The programme is governed by Hungarian law, and should continue to enable the EIB to raise forints in various segments (fixed, floating, zero coupon, index linked) by using a variety of structures and tenors ranging from one-to-30 years. Bonds are issued primarily as public offerings on the Budapest Stock Exchange, but may also be issued by way of private placements.
The EIB is taking a similar approach in other countries. In 1999 it launched a Public Debt Issuance Programme in the Czech Republic, helping establish long term benchmarks for Czech Crown paper. And another programme will soon be up and running in Poland, denominated in Zloty.
The EBRD has also been a heavy issuer in Zloty, but most offerings have been done on the Euromarkets out of its EMTN programme. In late November the EBRD issued a PLN1 billion (Eu258 million) global bond, with a one year maturity. Reflecting the high interest rates currently seen in Poland, the bonds paid a coupon of 19%.
The lead manager was Merrill Lynch, and the bonds are documented under the EBRD's medium term note program, and are listed on the London Stock Exchange.
?By issuing this global bond, the EBRD is offering a liquid product which facilitates institutional investor's involvement in the Polish Zloty market,? says Marcus Fedder, treasurer at the EBRD. ?We have seen a lot of interest across Europe and the US from institutional investors, and this issue is designed to meet their demand.?
Individual governments across the region are also taking steps to better regulate their fixed income markets, and have been busy putting in place new laws in areas such as securitisation.
In Poland the new Bond Act was enacted into law last August, and it may prove useful to project financiers. The law is mainly aimed at municipalities, allowing them to issue revenue bonds. But it does also contain a provision allowing joint stock companies in the transportation and transportation infrastructure areas to issue bonds. This would for example cover toll roads, and zloty-denominated bonds would be a good alternative to euro-denominated offerings, given that the revenue streams are themselves in zloty.
It is not only be issuing bonds that institutions such as the EBRD are making efforts to support the development of domestic bond markets. In December the EBRD provided a financing package to TBI Holdings (TBIH), a Dutch company which focuses on insurance, pensions and various other non-bank financial activities.
The EBRD is taking a 23.5% stake in TBIH, via a cash investment of $9.5 million and an exchange of the Bank's 30% stake in Bulgarian Insurance and Pension. The EBRD is also providing another $12 million in debt financing. And the other shareholders in TBIH, Kardan Ltd of Israel with 46% and the private equity arm of Deutsche Bank with 30.5%, will provide additional funding of $17.5 million.
The financing will help TBIH to further develop its existing subsidiaries and pursue more acquisitions, addressing the increasing demand for insurance and pension services in the region. Such a move will help build up a deeper investor base for medium and long term fixed income products, which fits in well with the needs of issuers across Central and Eastern Europe for longer term funding.
Access to local fixed income markets is clearly desirable in such circumstances, and countries such as Poland and Hungary have already managed to establish fairly deep investor bases for shorter maturity offerings such as commercial paper. And longer tenors are now also appearing, a process which is being helped along by institutions such as the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB), both of which have been active issuers in a variety of currencies across the region.
Up to now the majority of EBRD and EIB offerings have been done on the Euromarkets, which has not only allowed them to raise funds for local projects but also to help internationalise the capital markets in the accession countries. But now the trend is to go one step further, and actually launch bond offerings on the domestic capital markets.
One of the first countries to benefit from these moves was Hungary, where the EIB has a domestic debt issuance programme that dates back to 1996. In April of 2000 the EIB increased the size of this programme to HUF50 billion, having already used up most of the original HUF20 billion program. CIB Securities arranged the latest offering, and is acting as dealer along with seven Hungarian banks.
?The development of domestic capital markets in Central and Eastern Europe is a key objective of the EIB,? explains EIB vice-president Wolfgang Roth. ?Our experience shows that domestic capital markets are a reliable source of long term funding in the relevant currencies. Our debt issuance programme in Hungary allows for the flexible issuance of bonds on the domestic market to satisfy the increasing demand from our Hungarian clients for long term loans in forint.?
The programme is governed by Hungarian law, and should continue to enable the EIB to raise forints in various segments (fixed, floating, zero coupon, index linked) by using a variety of structures and tenors ranging from one-to-30 years. Bonds are issued primarily as public offerings on the Budapest Stock Exchange, but may also be issued by way of private placements.
The EIB is taking a similar approach in other countries. In 1999 it launched a Public Debt Issuance Programme in the Czech Republic, helping establish long term benchmarks for Czech Crown paper. And another programme will soon be up and running in Poland, denominated in Zloty.
The EBRD has also been a heavy issuer in Zloty, but most offerings have been done on the Euromarkets out of its EMTN programme. In late November the EBRD issued a PLN1 billion (Eu258 million) global bond, with a one year maturity. Reflecting the high interest rates currently seen in Poland, the bonds paid a coupon of 19%.
The lead manager was Merrill Lynch, and the bonds are documented under the EBRD's medium term note program, and are listed on the London Stock Exchange.
?By issuing this global bond, the EBRD is offering a liquid product which facilitates institutional investor's involvement in the Polish Zloty market,? says Marcus Fedder, treasurer at the EBRD. ?We have seen a lot of interest across Europe and the US from institutional investors, and this issue is designed to meet their demand.?
Individual governments across the region are also taking steps to better regulate their fixed income markets, and have been busy putting in place new laws in areas such as securitisation.
In Poland the new Bond Act was enacted into law last August, and it may prove useful to project financiers. The law is mainly aimed at municipalities, allowing them to issue revenue bonds. But it does also contain a provision allowing joint stock companies in the transportation and transportation infrastructure areas to issue bonds. This would for example cover toll roads, and zloty-denominated bonds would be a good alternative to euro-denominated offerings, given that the revenue streams are themselves in zloty.
It is not only be issuing bonds that institutions such as the EBRD are making efforts to support the development of domestic bond markets. In December the EBRD provided a financing package to TBI Holdings (TBIH), a Dutch company which focuses on insurance, pensions and various other non-bank financial activities.
The EBRD is taking a 23.5% stake in TBIH, via a cash investment of $9.5 million and an exchange of the Bank's 30% stake in Bulgarian Insurance and Pension. The EBRD is also providing another $12 million in debt financing. And the other shareholders in TBIH, Kardan Ltd of Israel with 46% and the private equity arm of Deutsche Bank with 30.5%, will provide additional funding of $17.5 million.
The financing will help TBIH to further develop its existing subsidiaries and pursue more acquisitions, addressing the increasing demand for insurance and pension services in the region. Such a move will help build up a deeper investor base for medium and long term fixed income products, which fits in well with the needs of issuers across Central and Eastern Europe for longer term funding.
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