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Significant volume of deals transacted in 2003, as corporates/banks availed of competitive pricing Back  
2003 was a particularly busy year for the capital markets, as illustrated in this, the first FINANCE Capital Markets Deal Directory. Overall the market was able to provide a significant level of funding at very competitive pricing, and activity was widespread in a range of areas, from corporate bonds.
TThis is the first time that FINANCE has published a directory of funding transactions carried out by Irish banks and corporates, and may well be the first time such information has ever been put together. The decision to publish such a directory was driven by two factors - 1) the increasing number of capital markets transactions being reported on every month in FINANCE, and 2) the increasing sophistication of such transactions.

The directory contains deals which were reported to us by the leading advisers/arrangers in the Irish capital markets, as well as by the issuers themselves. While the report does not purport to include all of the details of every market participant’s transactions during the year, it does contain details of the most significant deals under the following categories:

• Certificates of Deposit; Commercial paper; Corporate bonds; Covered bonds; Exchangeable bonds; FRNs; MTNs; Private placements; Rights issues; Securitisations - CDOs/ RMBS; Syndicated loans

The directory gives a very good indication of the level and type of business being transacted amongst Ireland’s corporates and banks in 2003, and there are several notable trends emerging.

On the corporate side, Ireland’s largest companies were particularly active in 2003. There was significant growth in the US private placement market, with transactions in the year amounting to €2.4 billion, a level of activity not seen since 1990.

Bord Gais raised $400 million in a private placement, and according to Paul Kenny, group treasurer, Bord Gais saw a number of attractions to this market over the public bond markets, with more flexible maturities and tranche sizes.

There was also a larger than usual number of corporate bonds, with the market now a real alternative to conventional debt. According to John Reynolds, executive director at IIB Bank, while such funding can prove useful in diversifying the funding base of a company, it also has the attraction of extending the maturity profile of the company’s debt. ‘However, the flexibility and responsiveness of the conventional debt market continues to be favoured by acquisition driven enterprises,’ he added.

The eircom €1.1 billion high yield bond was particularly innovative according to legal advisers A&L Goodbody. ‘We are not aware of any similar corporate restructuring being previously used in an Irish transaction to facilitate the payment of a distribution to shareholders. We also believe the structure can be used as a template for other Irish companies who are subject to the pre-acquisition profits dividend trap imposed by Irish law,’ Ciaran Rogers, a partner at the law firm, told FINANCE.

It was also relatively busy year for equity fundraising. According to Hugh McCutcheon, a director with Davy Stockbrokers, the absence of initial public offers for the second sequential year, the continued prevalence of difficult trading conditions across many sectors, and the impact of anti-equity sentiment on the incumbent companies, combined to create and sustain a challenging equity fundraising environment in 2003. The result was the re-emergence of deep-discounted rights issues, which had been little seen since CRH’s €1 billion issue in 2000. Three of the year’s largest fundraisings were executed at discounts of between 37.5 per cent and 44 per cent to market price.
It was mainly banks who issued MTNs, with continuing programmes from many of the larger IFSC banks including Sachsen LB Europe and DEPFA BANK, as well as from the domestic banks, including Anglo Irish Bank and IIB Bank.

Commercial paper maintained its popularity during the year, with updates from a number of issuers including Bank of Ireland, Irish Life & Permanent and First Active. Intesa Bank Ireland launched a €10 billion CP programme during the year, with WestLB CBB also commencing a €5 billion programme.

Covered bonds also entered the fray in 2003, with two issuers emerging, DEPFA ACS Bank and WestLB Covered Bond Bank.

On the outlook for 2004, John Bowe, head of debt capital markets at Anglo Irish Bank, says that a degree of caution on the part of investors to buy bonds issued by corporate and insurance borrowers, has not been helped by the recent Parmalat scandal. This means that bank lending may be favoured in the meantime. ‘Consequently there is likely to be a huge amount of investors cash which will be met with a shortage of investment opportunities and as result pricing will remain very competitive,’ he says.

Vincent Digby, head of funding at Bank of Ireland Treasury, says that last year saw a very strong demand for bank debt and capital, and there was a strong and consistent narrowing of spreads.

However, he says that, ‘spreads are now quite compressed at all levels across the funding curve and covered bonds are also continuing to narrow in. There is not a huge supply and demand from investors has been very strong. It looks as though spread compression has mostly run its course but conditions look set to be very stable in 2004’.

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