In 2001, one of the dominant trends in Taiwan's domestic bond market was the strong showing of multilateral borrowers such the Inter-American Development Bank (IADB) and the Nordic Investment Bank (NIB). At the start of this year, the early indications suggest that Taiwan will be equally attractive to these entities, also know as supranational companies, again in 2002.
Last week the European Investment Bank (EIB), the financing institution of the European Union, became the first multilateral issuer to tap Taiwan investors in 2002 with a NT$7 billion ($200 million) offering.
The deal, lead managed by Salomon Smith Barney, was split into seven tranches with maturities ranging from four years and three months to five years and nine months. The coupon rates on offer ranged from 3.1% to 3.19%.
Following hot on the EIB deal was a NT$10 billion transaction from the IADB, the multilateral organization established to foster development in Latin America and the Caribbean.
The latest deal, lead managed by ABN AMRO, is the IADB's sixth in Taiwan, with two launched in 2001 for a total of NT$11 billion. The most recent of these, a NT$7 billion callable issue in September that was also handled by ABN AMRO, offered investors seven tranches with maturities ranging from five years to seven years.
Coupons for the September deal ranged from 3.30% to 3.50%, between 10bp and 15bp below treasury bonds with the same maturities. The IADB, like all the supranational issuers in 2001, was attracted by a climate of low absolute interest rates in Taiwan. The fact that pricing for its latest deal comes inside of the September transaction reveals that trend is continuing, as well as the appetite for such paper from local investors.
The new deal, also structured with call options at various intervals, features 16 tranches with maturities ranging from five years to seven years. Officials at ABN AMRO said the deal was tailor made to meet the respective portfolio requirements of investors, ranging from bond funds to banks.
The coupons on offer range from 2.70% to 3.25%, with the callable feature enhancing the bonds by as much as 10bp. This is particularly attractive in light of falling government bond yields.
In terms of investor appetite, bankers say that demand for multilateral paper is still strong because investors want to get high-quality triple-A paper on their books. "Investors will continue to take this paper because it's quality credit and adds diversity to their fixed income portfolios," says one banker.
This appetite will be satisfied, but only if the favorable interest rates and foreign exchange conditions continue. "Continued multilateral issuance really depends on the spread difference between the swap curve and the bond curve," says a banker who worked on the latest IADB deal. "If the spreads are big enough to cover the funding cost and up-front fee, then new deals can be successfully launched."
