IFR Germany Special Report 2013
Germans like to think of their economy as the “engine” of the eurozone: when it comes to bailouts for countries such as Cyprus it is to Berlin that its currency partners turn. But this role of eurozone champion, and backstop, is not universally appreciated by either the German electorate or those of the rescued countries.
Unwilling saviour bridles at the yoke
Lieber ein Ende mit Schmerzen als Schmerzen ohne Ende, the German proverb goes: Rather a painful ending than endless pain. It would be hard to begrudge any Germans who felt that way about the state of the eurozone, an apparent blob of economic torpor that appears to offer little more than an apparently unending nightmare: a comedy and a tragedy, rolled into one.
Defying convention, and expectations
Berenberg is a staid 400-year old private bank, yet it is also the bright young thing in equity capital markets.
Offerings abound as appetite grows
Automotives are still at the centre of the German corporate bond market, but demand for German paper has seen issuance from lower rated companies and even unrated ones.
Benefits of individuality
Landesbanken have been through a process of balance sheet restructuring and strategic review. Stability now seems to have returned to many of the regionally-controlled banks, but questions remain over their future role and purpose.
Journey's end
The listing of Evonik had long been planned but when it eventually came to fruition, five years after initial exploratory talks, it was with an alternative structure which makes it an IPO like no other.
Facing the future
With no significant hedge or private equity fund industry to accommodate, Germany expects a relatively smooth transition to the Alternative Investment Fund Managers Directive although even here it will drive some notable changes.
League tables
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Shadow of its former self
Lack of supply means Pfandbrief issuance is likely to be down by a third this year, but demand is such that pricing in single digits over mid-swaps is now the norm.
Soft market, hard choices
The eurozone malaise is holding back deal-making in Germany as corporates look to preserve balance sheet flexibility. But there are positive signs that sponsor-led deals will provide some relief for deal-hungry loans bankers. Buyers and investors are being highly selective when it comes to the deals they will back. Non-cyclical industries are popular but the valuation has to be right.
Accelerate to accumulate
The performance of Germany’s car giants in the bond markets is a reflection of what is happening in the real economy as they swerve past Europe’s slowdown and map out the route to success in China.
Shining on the global stage
With bank liquidity scarce for some borrowers, and investors on the hunt for alternative assets, Schuldscheine are proving to be a global hit.
A sector apart
With little yield elsewhere for the risk averse investor, German property remains attractive. Total transaction volumes should hit €27bn this year.
Regulatory waves
KfW has proven itself as a true renaissance financial institution and a significant player in the capital markets. Regulatory developments have, however, complicated its relationship with the banking fraternity.
IFR SSA Special Report 2013
The unwavering commitment of politicians and central banks to tackle the world’s indebtedness head-on has welcomed in a period of relative calm for the SSA markets. While there are still concerns that the favoured austerity regimes are doing little to relieve economic stagnation in many countries, there are now sufficient backstops in place to convince investors that, at least, things aren’t going to get any worse.
The dealers' dilemma
European governments have coped admirably with their hefty funding programmes in the crisis years, but there are alarming signs that the primary dealers that have eased this process may be struggling to keep their businesses viable.
Redemption and recovery
With eurozone attention focused on the south, Ireland has pushed through tough austerity reforms and resumed a normalised debt programme. It may take Portugal a little longer.
Collateral damage
Supranationals are stubbornly resisting calls to post collateral on swaps, but bankers warn they may pay a high price for their defiance if they drift down the credit curve to find swaps counterparties.
Tap dance
The need for yield, Basel III requirements and attention from rating agencies all add to the challenges public sector issuers will have to face.
Sukuk market off to a strong start
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Outside the box
A surprise offering last year opened new funding channels for Japan’s municipalities with implicit government guarantees.
Peripheral vision
There has been a palpable shift in the market mood as events in Europe have developed, with investors demonstrating a level of resilience and stoicism that implies they have become desensitised to negative news. This is reflected in the European sovereign bond market, where appetite for peripherals is on the rise.
Rome syndrome
Fears of economic turmoil following elections in Italy earlier this year have failed to materialise as markets shrugged off concerns of a reversal of reforms set in place by by Mario Monti. A short-lived sell-off has been reversed as ECB measures appear to have acted as a robust firewall to the political stalemate.
Rescue remedy
The EFSF has shed its early reputation for rigidity in its funding strategy and has upsized its programme to raise €58bn this year. That aim has been helped by a measure of good fortune as Japan accelerated its overseas bond-buying programme, while its auctions have established a foundation for liquidity in the eurozone.
Capital increase to strengthen EIB
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Slim pickings
It has not been the best of years for sovereign debt issuance in Asia. Following a robust 2012, in which regional sovereigns issued nearly US$60bn in new notes – the most in five years – this year just didn’t seem to get started.
Great expectations
Japan’s hope of hitting an inflation target of 2% in two years, largely through increasing the purchase of government bonds, could kick start its economy, but the plan has its detractors.
IFR Turkey Special Report 2013
Shelter from the storm: Turkey can be forgiven for feeling smug. With Cyprus cranking the eurozone crisis back into high gear and the EU’s peripheral members again looking fragile, at first sight the country stands out from its rowdy neighbours as a paragon of growth and financial stability.
Surfing global liquidity
Turkey remains an investor darling. It benefits from a young population, a stable government committed to market-orientated reform, a bold Central Bank and declining inflation. What could possibly go wrong?
Peaks and pitfalls
Foreign companies are eager to get a foothold in Turkey, but there are concerns as surging valuations are driven by eager foreign investors and family businesses dominate parts of the economic landscape.
Pole positioning
Turkey has taken steps to reform its pension system, which should eventually come to be the basis of stable and resilient capital markets. The nation is following the path to developing a deep pool of domestic institutional investors previously travelled by Poland.
High expectations
Turkey’s blooming economy is attracting jumbo loans from international lenders to fuel the emerging country’s growing portfolio of multi-billion infrastructure and privatisations projects and support its well-established financial institution market.
Diversifying
The bellwether economy for emerging Europe has set its usual brisk pace in the international bond markets, but diversification is the watchword as it seeks to reduce its dollar dependency.
Floating hope
The past few years have been tough-going for investment bankers in Turkey. But much-needed financial reforms, allied to a rising and increasingly stable economy, are finally instilling much-needed confidence in Turkey’s investor base.
Standing firm
Despite concerns about the impact of the adoption of Basel II last summer, Turkish banks came out of the exercise in good shape and are becoming the capital market darlings of 2013.
Lira, lira, yields on fire
Two Turkish banks and one Russian bank have launched inaugural Turkish lira-denominated international bond issues this year, taking advantage of investor appetite for higher yields to open a new funding option for issuers. However, with the outlook for the Turkish currency less than certain, investors may find they have taken a bigger bet than they had bargained for.
