Debt 2016 e-book

THE INTERNATIONAL DEBT CAPITALMARKETS HANDBOOK2016

COVER+SPINE_DCM_2016 9/10/15 07:16 Page 1

2824

Traditional values. Innovative ideas.

Thinking that can change your world. www.rmb.co.za

Rand Merchant Bank is an Authorised Financial Services Provider

THINKCAPITAL MARKETS.THINK RMB. RMB acts as joint lead manager and bookrunner for MTN’s debut Eurobond issuance

Rand Merchant Bank was the lead manager and bookrunner for MTN’s inaugural international issuance of a 10 year US$ denominated Eurobond. RMB was chosen for this transaction because of our strong Africa focus and extensive track record for successfully taking SA corporates to the offshore markets. This transaction further strengthens our strong relationship with MTN and demonstrates RMB’s growing reach into the rest of Africa as a leading Debt Capital Markets bank. For more information, contact Martin Richardson on +44 207 939-1731, email [email protected] or Ayanda Sisulu-Dunstan on +27 11 269-9721, email [email protected]

MTN CALLED AND RMB ANSWERED

IFC_DEBT_2016.qxd 9/10/15 09:49 Page 1

Editor: Lisa Paul

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© Copyright rests with the publisher, Capital Markets Intelligence Limited. ISBN 978-0-9931571-4-1

The International DebtCapital MarketsHandbook 2016

THE INTERNATIONAL DEBT CAPITALMARKETS HANDBOOK2016

CONTRIBUTORS

Anderson Mori & Tomotsune

Ashurst

Davis Polk & Wardwell LLP

Euronext

GSK Stockmann + Kollegen

International Capital Market Association (ICMA)

International Finance Corporation

JSE Limited

London Stock Exchange

Pohjola Bank plc

Rand Merchant Bank

Singapore Exchange

SIX Swiss Exchange

Walder Wyss Ltd.

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Setting standards in the international capital market

The International Capital Market Association(ICMA) has made a significant contribution to thedevelopment of the international capital market foralmost 50 years by encouraging interaction betweenall market participants: issuers, lead managers,dealers and investors.

ICMA is both a self-regulatory organisation and atrade association, representing members in Europeand elsewhere, who are active in the internationalcapital market on a global or cross border basis.It is also distinctive amongst trade associations inrepresenting both the buy-side and the sell-side ofthe industry.

ICMA works to maintain the framework ofcross-border issuing, trading and investingthrough development of internationally acceptedstandard market practices, while liaising closelywith governments, regulators, central banks andstock exchanges to ensure that financial regulationpromotes the efficiency and cost effectiveness ofthe international capital market.

480 financial institutions in 56 countries are already experiencing the direct benefits of ICMA membership. Find out about joining us.

[email protected]+41 44 360 5256 +44 207 213 0325

If you are an individual working for a member firm (a full list of ICMA members is available from www.icmagroup.org) contact us to find out how your membership of ICMA can directly benefit you as you transact your day to day business.

Setting standards in the international capital market www.icmagroup.org

a-d_DEBT_2015 9/10/15 08:02 Page b

Contents

Forewordby Martin Scheck, Chief Executive at the International Capital Market Association (ICMA)

Chapter 1Green is the colour

by London Stock Exchange

Chapter 2New SEC guidance for shortened debt tender offers: Implications for European liability

management transactions

by Davis Polk & Wardwell LLP

Chapter 3Capital markets for development

by International Finance Corporation

Chapter 4Finnish corporate bond market to see more rated issuers

by Pohjola Bank plc

Chapter 5Johannesburg Stock Exchange

by JSE Limited

Chapter 6Africa is calling

by Rand Merchant Bank

Chapter 7SGX: The ideal partner in the Asian bond market

by Singapore Exchange

Chapter 8Australian debt capital markets: Strong, stable and growing

by Ashurst

Chapter 9Financing through debt capital markets in Japan by non-Japanese entities

by Anderson Mori & Tomotsune

01

04

08

11

18

20

26

31

37

adve

rtis

ers

inde

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insidefrontcover

facingcontents

7

15

29

35

39

45

51

59

outsidebackcover

Rand Merchant Bank

International CapitalMarket Association(ICMA)

Davis Polk &Wardwell LLP

Pohjola Bank

Singapore Exchange

Ashurst

Anderson Mori &Tomotsune

SIX Swiss Exchange

Walder Wyss Ltd.

GSK Stockmann +Kollegen

London StockExchange

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Chapter 10SIX Swiss Exchange – efficient capital raising on an international market

by SIX Swiss Exchange

Chapter 11Developments in Swiss debt capital markets – 2015

by Walder Wyss Ltd.

Chapter 12Capital markets 2016: What’s up in Germany?

by GSK Stockmann + Kollegen

Chapter 13Private placement bonds poised for further growth in 2015

by Euronext

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48

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62

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FOREWORD I CAPITAL MARKETS INTELLIGENCE

The main drivers of this change are new post-crisis

regulation affecting all areas of capital markets activity and

participants in the markets, combined with a continuing

ultra low interest rate environment. Economic growth is

fragile and remains an issue. And with the imposition of

QE, the ECB’s buying programmes of both private sector

and public-sector assets have driven large swathes of the

bond markets into negative yield territory. Furthermore,

negative deposit rates have turned the market’s

relationship with cash on its head. Market structures are

having to adjust and participants are fundamentally

reassessing their business models and the way that they

interact with each other and with end clients.

In secondary markets the impact of these changes on

liquidity, not only in the cash bond market but also the

collateral and repo markets, is already very evident. There

are further challenges to liquidity in the pipeline, from the

implementation of MiFID II transparency provisions (where

the proposed definition of what constitutes a liquid bond

needs further work), from the implementation of the

proposed mandatory buy-in regime under the Central

Securities Depository Regulation and from the continuing

impact of QE. On the other hand the dearth of liquidity is

also driving innovation in the field of electronic trading and

is also stimulating useful discussion on how issuers and

investors might be able to contribute more to mitigate the

problem.

Primary debt capital markets are also coming under

increasing regulatory scrutiny, with the recently issued

report of the UK’s Fair and Effective Markets Review

commenting on the allocation process and transparency of

new issues. ICMA responded to the consultation on behalf

of our members and will continue to work with issuers,

underwriters, investors and the authorities to ensure that

the new issue processes are predictable, transparent and

fair so that this important market segment remains

efficient and effective.

As this is written in the summer of 2015 we sense clearly that the pace ofchange in capital markets is accelerating. We can predict that debtcapital markets of the future, primary secondary and short-term moneymarkets, will not look the same as they do now. The roles of the issuers,intermediaries and investors in the capital markets will be differentlyconfigured and many of them, including ICMA’s member firms, are as aresult facing some significant challenges. Ever present geopoliticaltensions, both within and outside Europe, are adding to this complexpicture.

Forewordby Martin Scheck, Chief Executive, International Capital Market Association (ICMA)

Fore

wor

d

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FOREWORD I CAPITAL MARKETS INTELLIGENCE

The Capital Markets Union initiative in Europe is a welcome

development as it recognises the increasingly important

role capital markets must play in financing jobs and growth

in the European economy. The creation of an integrated,

resilient and effective capital market facilitating the flow of

capital across borders has been central to ICMA’s mission

for many years. Our work to develop the markets in

European Private Placements, green bonds, infrastructure

financing and securitisation, and in removing structural

barriers to collateral flow, is fully aligned with the goal of

the CMU initiative to improve market-based finance

available to businesses in Europe.

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CHAPTER 1 I CAPITAL MARKETS INTELLIGENCE

1

Green is thecolourby Gillian Walmsley, London Stock Exchange

London Stock Exchange is often seen primarily as an equity

exchange operator but it is also one of the world’s major

centres for issuing, listing and trading all types of debt

securities. In 2014 alone there were more than 1,500 bond

issues across our fixed income markets, raising the

equivalent of more than US$350bn, in 25 different

currencies. London is the leading global centre for

international Eurobonds, with London-based firms

accounting for 60% of the primary market issuance and

70% of trading on the secondary market. Our London retail

bond market (ORB) provides companies with direct access

to private investors, and builds on the success of deeply

liquid retail bonds markets; MOT and EuroTLX on Borsa

Italiana, part of London Stock Exchange Group (LSEG).

Our wider wholesale fixed income markets allow issuers full

flexibility with a range of market models available to support

varying levels of secondary market access and transparency.

MTS, also part of LSEG, complements our fixed income

secondary market offering, helping buy-side and sell-side

institutional participants that trade pan-European corporate

and government bonds. In 2014 MTS expanded through the

The green bond market is growing and London Stock Exchange is lookingto lead the way. Green bonds were born when the World Bank launchedand listed its first product in 2008. Today, investors are driving fundmanagers, index providers and asset managers to offer green investmentsolutions, against a backdrop of increased awareness around CorporateSocial Responsibility from companies themselves. This demand has meantthe green bond market has grown from around US$13bn in 2013 to anestimated US$100bn in 2015*. To support the continued development of thismarket and help further increase transparency for investors, LondonStock Exchange has launched a range of dedicated green bond segmentson its fixed income markets.

Gillian Walmsley, Head of Fixed Income


tel: +44 (0) 20 7797 3679

email: [email protected]

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acquisition of Bonds.com, a US-based electronic trading

platform for corporate and emerging market bonds, which

enables US fixed income traders to meet their domestic and

international needs.

Green bonds currently account for only a small proportion of

the capital raised in the wider fixed income markets, but

they represent one of the areas that are experiencing the

fastest growth, with high levels of demand from experienced

practitioners and the general public alike. Green bonds are

classified as any type of bond instrument where the

proceeds of the capital raised will be exclusively applied to

finance or re-finance, in part or in full, new and/or existing

‘green’ projects. This key feature will be described in the

bond’s legal documentation, be separately managed within

the company issuing the bond and monitored and reported

throughout the life of the instrument. Potential eligible

green bond projects include renewable energy, energy

efficiency, sustainable waste management, sustainable land

use, biodiversity conservation, clean transportation and

climate change adaption.

The potential scale of the market is highlighted in a recent

WEF Green Investment Report which estimated the world

needed an additional US$700bn investment in green-

related projects to meet the climate change challenge. The

need for greater investment in this sector means there will

be an emphasis on improving access to green finance, with

green bonds being one of the key tools that the industry

can use to help hit this target. The WEF report also notes

that developing countries are increasingly playing an active

role in scaling up green investment but highlights that

more needs to be done to accelerate this trend and push

more private finance into green investment initiatives.

China in particular is seen as a huge source of potential

future growth for the green bond market. Market

participants are increasingly highlighting the growing

appetite for green finance from Chinese companies and

financial institutions.

In 2014, global green bond issuance grew to almost

US$37bn, and this figure is expected to triple in 2015*.

Market infrastructure organisations such as LSEG have an

important role to play in facilitating capital raising, by

providing investors and issuers with an efficient,

transparent and regulated marketplace. To support the

development of this market, London Stock Exchange has

launched a full range of dedicated segments specifically

designed for green bond issuance. The aim is to promote

greater transparency in the market by providing green

bond instruments with a specific position within London

Stock Exchange’s standard debt markets, and helping

investors identify the ‘green’ instruments more easily. In

2010 we launched our Order book for Retail Bonds (ORB)

and in 2014 the Order book for Fixed Income Securities

(OFIS) for exactly the same reason; to provide investors

with easily identifiable instruments alongside the benefits

of electronic order book trading. Green bond documents

will also be made available on our website and we will

promote secondary market transparency by encouraging

issuers to admit their green bonds to these dedicated

segments, which will provide easily accessible order book

trading or end-of-day pricing.

London Stock Exchange’s Main Market is the world’s most

international market for the listing and trading of equity,

debt and other securities and provides access to a deep

pool of global liquidity. The UK Listing Authority (UKLA)

offers the highest standards of disclosure and regulatory

oversight. London Stock Exchange’s green bond segments

will sit alongside a range of dedicated specialist market

offerings including ‘dim-sum’ bonds and Islamic finance

‘sukuk’ instruments. Our flexible model offers OTC-style

trade reporting, end-of-day only pricing or continuous

market maker quoting.

Our sister market, Borsa Italiana is also promoting

issuance of green bonds to both institutional and retail

investors, as demonstrated by the recent retail dedicated

“Green Growth Bond” issued by the World Bank and listed

on Borsa’s MOT market on June 15, 2015.

Alongside the new dedicated green bond segments, LSEG’s

extensive expertise in information services and index

calculation, through FTSE Russell, will offer further

opportunities to increase transparency in the green bond

market. By providing issuers with more efficient tools to

report about their sustainable initiatives, and investors

2

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with a comprehensive product to assess a wide range of

financial instruments, the Group can offer a range of tools

within an innovative Low Carbon Economy framework.

FTSE Russell has long been at the forefront of

developments in the environmental, social and governance

(ESG) market, having launched the FTSE4Good Index

Series in 2001. Subsequently FTSE has expanded its

offering further with the launches of the FTSE

Environmental Market Series, the FTSE ESG Ratings and

the FTSE ex-Fossil Fuel Series. All of these are supported

by a dedicated Business Unit. FTSE Russell supports

clients by providing clear definitions, data and tools to

enable the integration of ESG considerations into

investment management and asset allocation.

At the end of 2015, the United Nations Climate Change

Conference will aim to achieve a legally binding and

universal agreement on climate change, from all the

nations of the world. The overarching goal of the

convention is to reduce greenhouse gas emissions and to

limit the global temperature increase to two degrees

Celsius above pre-industrial levels. London Stock Exchange

Group is a committed proponent of green financing and

believes it is a sector with huge growth potential. By

creating dedicated segments for green investment

products, LSEG can promote the growth of this market,

harness the increased appetite from investors and issuers

and turn what is today a niche market, into a more

mainstream tool for the benefit of all.

Note:

*Source: Climate Bonds Initiative.

3

Contact us:


10 Paternoster Square, London EC4M 7LS, UK

tel: +44 (0) 20 7797 1000

web: www.londonstockexchange.com

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4

New SEC guidance for shorteneddebt tender offers: Implications forEuropean liability managementtransactionsby Reuven Young and Radoslaw Michalak, Davis Polk & Wardwell LLP1

On January 23, 2015, the Staff of the US Securities and

Exchange Commission (the “SEC”) issued a no-action letter

addressing the circumstances under which issuers may

conduct tender offers for debt securities that remain open

for five US business days, rather than the 20 US business

days required by Rule 14e-1 under the US Securities

Exchange Act.2 The new guidance modernises the existing

framework and alters the long-standing positions of the

Staff contained in a series of no-action letters dating back

to 1986, recognising the advancements in communication

technology over the last three decades that allow issuers

to provide information to investors on a real-time basis.

In addition to comprehensively setting forth the

requirements for shortened debt tender offers, the new

guidance also applies to high-yield debt securities, which

have historically been excluded from shortened debt

tender offers no-action relief, and permits the five business

day accelerated timeline for certain exchange offers.

The US rules have tended to dictate the timetable in many

significant European liability management projects. In

general terms, the US tender offer rules apply if the tender

offer touches the United States (for example, where there

is a small number of holders in the United States) even if

the issuer is a non-US company. As a result, the new

framework should be particularly helpful to European

issuers, particularly of high-yield bonds, who were

previously reluctant to engage in tender offers subject to

US tender offer rules because of their complexity and more

onerous procedural requirements. For many companies,

the recent changes will provide new flexibility to take

advantage of the current low-interest rate environment and

quickly and efficiently refinance debt.

A new no-action letter from the SEC Staff substantially revises theframework applicable to debt tender offers.

Reuven Young, Partner

tel: +44 (0) 20 7418 1012


Radoslaw Michalak, Counsel

tel: +44 (0) 20 7418 1393


Reuven Young Radoslaw Michalak

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Five business day tender offers

Under the new no-action letter, a tender offer for non-

convertible debt securities can be held open for as little as

five US business days if it satisfies a number of technical

requirements. The most significant of these are:

• the offer must be an “any-and-all” tender offer (i.e. all

holders are eligible to participate and all validly

tendered securities are accepted by the offeror) –

which excludes waterfall, capped and similar

structures;

• the offer must be made by the issuer of the target

securities or its direct or indirect wholly-owned

subsidiary or a parent entity that holds, directly or

indirectly, 100% of the issuer’s capital stock;

• the offer must be announced via a press release

through a widely disseminated news or wire service,

disclosing the basic terms of the offer and containing a

hyperlink to the offer materials, by 10:00 a.m., Eastern

time, on the first day of the offer (defined as

“Immediate Widespread Dissemination”);

• if the issuer is an SEC-reporting company, it must

furnish to the SEC the press release announcing the

offer by 12:00 noon, Eastern time, on the first day of

the offer;

• the offer must be for cash and/or “qualified debt

securities” (generally speaking, securities identical in

all material respects to the target securities except for

the maturity date, interest rate and redemption

provisions, which have a weighted average life to

maturity that is longer than the target securities);

• participants must be given the right to withdraw their

tendered securities before the offer expires (previously

not required, although often voluntarily granted in

debt tender offers);

• the offer must provide a mechanism for “guaranteed

delivery” which allows holders to tender during the

offer period but deliver their securities up until the

close of business on the second business day after

expiration;

• early settlement (i.e. settling tendered securities prior

to the expiration of the offer) is not permitted;

• the offer must not be made in connection with a

consent solicitation; and

• the offer must not be made in connection with certain

extraordinary transactions (such as a change of

control) or an existing default or event of default under

an indenture or material credit agreement to which the

issuer is a party.

Key changes from current marketpractice

Standard minimum offer periodThe new accelerated timeline recognises the advancements

in technology which enable investors to react quickly and

efficiently in a much shorter timeframe than 30 years ago.

The five business day standard is also intended to ensure

that investors have a uniform minimum period of time to

make a tender decision. Prior SEC guidance required

tender offers for high-yield debt to remain open for 20 US

business days, while allowing certain investment grade

debt tender offers to remain open for 7-10 calendar days –

even if one or more of those days fell on a weekend or

market holiday. In addition, DTC (as registered holder)

often received the offer documents late on launch day,

which effectively meant that investors had one day less to

consider the offer. The new guidance, which imposes a

standard minimum offer period and requires Immediate

Widespread Dissemination, makes it far more likely that

investors will promptly receive offer materials and have a

standard period in which to make a tender decision.

High-yield bonds eligible for acceleratedtimelineOne of the principal changes brought about by the new

guidance is the elimination of the distinction between

investment grade and high-yield securities, consistent with

changes in other areas of the SEC’s rules and reflecting the

size, profile and sophistication of the high-yield investor

community. Under previous no-action letters, high-yield

tender offers were required to be held open for 20 US

business days. As a result, the five business day flexibility

may be very useful to European high-yield issuers who in the

past had been reluctant to undertake liability management

5

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6

exercises subject to US tender offer rules because of the

relatively complex and onerous regulatory framework.

Broader “benchmark” pricing and reducedmarket riskThe new no-action letter expands the definition of

“benchmark”, previously limited to US Treasuries, to also

include LIBOR, swap rates and sovereign securities

(denominated in the same currency as the target securities)

so long as they are readily available on Bloomberg or a

similar trading screen or quotation service. The exact

amount of consideration must be fixed no later than 2:00

p.m., Eastern time, on the last day of the tender period.

This, combined with a substantially shorter minimum offer

period, should make the US framework significantly more

attractive to European issuers intending to refinance their

debt, who in the past were generally limited to offering a

fixed nominal price in tender offers for non-US dollar

denominated securities. Allowing the use of spread-based

pricing (expressed as, for example, “UK Treasury Gilt due

March 2018 + 80 basis points”) on a five business day

timetable should significantly reduce market risk compared

to the old framework.

Reducing interest expenseThe new accelerated timeline also means that issuers will

be able to complete tender offers more quickly, thereby

reducing interest expense on the old debt being refinanced

by reducing “double carry” (paying interest on both the old

debt and the new issue) or “negative carry” (paying

interest on the old notes until the offer expires and they

can be repurchased). This will in particular benefit high-

yield issuers that previously struggled to match settlement

of a new bond issue with expiration of a tender offer when

trying to reduce interest expense.

Shorter tender offer periods should also be attractive in

refinancing scenarios where holders want to “roll over”

their investment by using funds received in a tender offer

to purchase a portion of the concurrent new money issue.

New flexibility, new limitationsThe new guidance comes with certain limitations and will

also restrict some of the current market practices, as it

supersedes several previously issued no-action letters.

Since the no-action relief only applies to any-and-all tender

offers, partial tender offers will not benefit from the new

framework. As a result, offers with a “waterfall” or

“capped” structure or “modified Dutch auction” pricing –

which target less than all of the outstanding securities –

will still need to remain open for 20 US business days.

Similarly, the new framework does not apply to tender

offers which are combined with a consent solicitation.

Accordingly, the usefulness of the new framework may be

limited in case of transactions that go beyond a pure

refinancing (for example, the relief would not be available

for a transaction seeking an “exit consent”).

Tender offers which are not eligible for the new accelerated

timetable (or where issuers are not willing to comply with

the new requirements) can still be structured as a regular

20 US business day offer (with an “early bird” deadline on

the 10th US business day, if applicable). Certain tender

offers may also be eligible for the Tier I exemption,3 which

some European issuers may view as an attractive

alternative due to its more relaxed procedural

requirements.

Notes:

1 By Reuven Young and Radoslaw Michalak, Partner and Counsel

respectively, of Davis Polk & Wardwell LLP’s London office. The views

expressed herein are personal and do not necessarily reflect those of

Davis Polk. This article provides certain insights into the new SEC

rules but is not intended to be an exhaustive analysis of all the

considerations and is not legal advice.

2 The no-action letter is the product of extensive discussions among a

group of liability management executives at several investment

banks, the Credit Roundtable (a group of large fixed-income

investors), law firms (including Davis Polk) which regularly advise on

liability management transactions, and the Staff of the SEC. A copy of

the letter can be found at: http://www.sec.gov/divisions/corpfin/cf-

noaction/2015/ abbreviated-offers-debt-securities012315-sec14.pdf

3 See Rule 14d-1(c) under the US Securities Exchange Act.

Contact us:

Davis Polk & Wardwell London LLP

5 Aldermanbury Square, London EC2V 7HR, UK

tel: +44 (0) 20 7418 1300

web: www.davispolk.com

04-07_DCM_2016.qxd 9/10/15 09:30 Page 6

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8

Capital markets for development by Ethiopis Tafara, International Finance Corporation

And this is only part of the story. Small and medium-sized

enterprises in emerging economies – and counting only the

minority in the formal sector – are also starved for finance.

Their needs are over US$250bn in Latin America,

US$200bn in Asia, and at least half that in Africa.

It is clear that developing country governments cannot

provide financing of this scale, nether can donor

governments, nor can local financial institutions. So what

is the answer? Capital markets.

Consider the supply side of the equation – the amount of

money available for investment around the world. In 2013,

assets controlled by institutional investors in OECD

countries grew to over US$92 trillion, and they keep rising.

The world’s largest 300 pension funds controlled almost

US$15 trillion, while sovereign wealth funds have amassed

about US$6.5 trillion. Imagine if the emerging economies

could capture just a fraction of these funds.

Then consider the rapidly growing domestic savings across

the emerging economies. In Africa there are now nearly

US$400bn in pension fund assets, and in Latin America the

Ending extreme poverty for good and building shared prosperity acrossthe developing world takes money. A lot of money. Take infrastructure, forexample. For the foreseeable future, an estimated US$50bn per year isneeded in Africa to deliver basic services such as running water andelectricity, and to build roads connecting communities to markets. Annualinfrastructure financing needs in Latin America amount to over US$300bnbetween now and 2020; and in populous Asia the price tag is US$8 trillionover 2010-20 period. These numbers are equivalent to 7% of GDP of theseregions. This is double the percentage of GDP the developed countriesspend on their infrastructure; and it highlights the magnitude of thechallenge the emerging economies face in advancing their development.

Ethiopis Tafara

IFC General Counsel and Vice President,

Corporate Risk and Sustainability


tel: +1 202 458 8206

08-10_DCM_2016.qxd 9/10/15 09:33 Page 8


pension funds of the five largest economies alone had over

US$720bn in 2013. In Asia’s growing economies the figures

are even more impressive.

There is enough capital in the world. The question is how

to channel it to the development needs most effectively

and in the way that works for investors. Capital markets

are a big part of the solution.

Time and time again capital markets have proven to be

effective intermediaries in channelling savings and other

funds to countries’ national development priorities and

fuelling economic growth and jobs. They serve as an

alternative to the banking sector. In this role not only do

they mobilise additional finance to drive economic growth,

but by virtue of providing an alternative, capital markets

introduce financial stability into economies. They also

introduce stability through a different approach to risk

allocation, making economies more resilient in the face of

capital outflows and banking crises.

Capital markets in developing countries – many of which

are still in their infancy — hold tremendous potential. Local

bond markets, for example, have been growing at a robust

rate in some regions in the last decade. The Asian bond

market has grown more than fourfold since 2008 to US$3

trillion, representing almost a quarter of GDP. In Sub-

Saharan Africa only South Africa had issued a sovereign

bond before 2006, but now over US$25bn has been raised

across the continent, with US$7bn in 2014 alone. While

these numbers fall short of the financing needs, they point

to the trajectory of growth through a lot of momentum

gained in a short time. Similarly, the size of domestic bond

markets in the largest Latin American countries has more

than doubled since 1995, but apart from Brazil and Mexico

the pool of capital is still relatively small.

What would it take for the emerging economies to develop

robust capital markets to finance the growth of private

enterprise, economy, jobs, and improve the lives of

millions?

Today, when we think about global capital markets, we

focus on the great financial centres — New York, London,

Tokyo, Hong Kong. But this focus on the largest, most

modern markets misses an important point: every market

is both similar and unique — similar in that they all

respond positively to certain fundamentals, but unique in

the environment and tradition in which they develop and

prosper.

For example, the US capital market stands at

approximately US$60 trillion. This is a huge number

connected to a complex market. But its size and complexity

obscures the simple fact that the US capital market is still

just a market. Markets, in one form or another, have

existed in every society since the dawn of recorded history.

And, despite the size and complexity of modern trading

places, market fundamentals today are similar to those

that permitted markets to function thousands of years ago

in ancient Sumeria, Egypt, and China, or in the Bantu and

Swahili cities of Africa.

These fundamentals are simple. They include a place

where buyers and sellers can meet. This place can be a

simple bench under a buttonwood tree, which is how the

New York Stock Exchange got its start, or it could be an

old-fashioned trading floor, or the Rwandan Stock

Exchange or, increasingly, the virtual space of the Internet.

Second, there must be property rights. Buyers and sellers

must have some legal right to control and transfer the items

traded. In ancient times, these rights were recognised by

custom or possession. Today, they usually involve laws.

Either way, without these rights, markets cannot exist.

Third, and most importantly, markets require trust. Trust is

the lubricant that keeps the wheels of a market from

grinding to a halt. It is the faith that a buyer is buying what

he expects, and the faith that the seller will receive the

payment promised at the time promised. Without this basic

trust, no market in the world, no matter how

technologically sophisticated, will succeed.

In the informal markets in Africa, trust is based on your

family, reputation, and the relationships you have built

within a small community. In the diamond markets of New

York and Amsterdam, trust is based on ethnicity, religion

and the personal interaction of a handful of traders. These

markets work because of the value of reputation in their

9

08-10_DCM_2016.qxd 9/10/15 09:33 Page 9


10

tight-knit communities. With the anonymous trading that

characterises modern capital markets, this personal trust

has been replaced by a surrogate — best practices,

securities laws, regulations, and their vigorous

enforcement.

So how do we go about building trust in these new capital

market? The answer lies not so much about the number of

laws or regulations, but rather about the principles and

behaviours they seek to establish. These principles and

behaviours need to reflect a thorough understanding of the

investors’ perspectives and needs – it is their capital at

stake, after all.

One of the underlying principles governing trust is

transparency. To earn trust, participants in the market need

to be completely transparent to their investors, clients and

regulators about their practices, their conflicts of interest

and their risk profile.

Reliability and credibility are also essential. Investors need

to have assurances that the information disclosed to them

is accurate, complete and verified. It gives them confidence

that they have a sound basis to judge the value of what

they are buying. So accountants and auditors serve a

critical role in enabling the transparent and accurate

financial reporting that underpins investor confidence and

trust. Credit rating agencies are also key actors in

rebalancing information asymmetries by providing

information about the creditworthiness of companies to

lenders and investors.

And finally, trust is built on knowing there is a public or

private cop on the beat. Clear rules are necessary but their

credible enforcement is equally crucial.

Without a doubt, governments have to play a central role in

creating and enforcing the regulatory framework that

fosters trust. But it takes time. Different market players –

private companies, accountants, auditors and rating

agencies – can do a lot on their own. Today we benefit from

the enormous body of knowledge and experience from

market successes and failures that have been translated

into global principles and standards. There are partners

like IFC to help make these principles and standards work

across different environments in the emerging markets to

build investor confidence as the foundation for capital

markets. The development of domestic capital markets

across the developing world has the potential to provide

the funds necessary to drive economic growth to end

extreme poverty and build shared prosperity and also bring

robust returns for investors.

Contact us:


2121 Pennsylvania Ave.

Washington DC, 20433, US

tel: +1 202 473 1000

web: www.ifc.org

08-10_DCM_2016.qxd 9/10/15 09:33 Page 10


11

Finnish corporate bond marketto see more rated issuersby Jani Koivula, Pohjola Bank plc

The Finnish corporate bond market has always been, to

some extent, held hostage by the solid bank lending scene

prevailing in Finland. This is one of the main reasons why

the Finnish corporate bond market remains somewhat

underdeveloped compared to the wider European market in

terms of relative volumes, average issuer profile and

composition of the issuer base. In general the euro-

denominated bond issuance is dominated by rated

corporates with both the volumes raised and number of

issues strongly tilted towards them, whilst in Finland the

number of unrated issues have constantly been higher than

rated ones, although rated issuance fares better against the

unrated market when comparing volumes due to larger

average issue sizes for rated issuers (see Exhibit 1 and 2).

Finnish corporates have mostly been reliant on bank

borrowing in the past and, whilst they have become more

inclined to utilising the bond market to meet their

financing needs, bank borrowing remains a far bigger

source of debt funding for them in general. Healthy

balance sheets of Nordic banks, the main source of bank

funding for Finnish corporates, and their insignificant

The Finnish corporate bond market has historically been a playground forunrated issuers. Whilst there are a number of issuers with an officialcredit rating, many of them are rather infrequent issuers and the majorityof issuance has come from unrated issuers in recent years. Whilst theunrated issuers have been able to find sufficient demand for theirtransactions we have, for a couple of years now, felt that a number ofthem would benefit from a credit rating as their issue sizes are growing,the total amount of bonds outstanding is increasing and they aretargeting more international and diversified investor bases. Times arechanging and there are signs that a number of current and potentialfuture corporate issuers are contemplating obtaining a rating.

Jani Koivula, Head of DCM Origination

Pohjola Bank plc

tel: +358 (20) 252 2360

mob: +358 40 5475 245


11-17_DCM_2016.qxd 9/10/15 09:36 Page 11


exposure to troubled assets during the credit crises have

enabled corporates to rely on bank borrowing even in

recent years despite turbulent market conditions.

Whilst Finland boasts a relatively healthy and liquid

domestic corporate bond market, a number of issuers have

funding needs, both size and maturity wise, that cannot

efficiently be met by bank borrowing, investors willing and

able to invest in unrated bonds, or the combination of the

two. These funding needs act as a key driver for corporates

obtaining a new credit rating. The most likely candidates

are those operating in capital intensive industries, such as

utilities, telcos and real estate development, which tend to

require funding for large investments that provide stable

income over many years, often decades. Whilst banks are

happy to lend money to such companies, bond financing is

often more attractive for them due to longer tenors, often

significantly, on offer.

Bank funding is generally limited to five years, or seven at

best, whilst fixed income investors can buy bonds with 10-

year maturities, or even longer, subject to an investment

grade (“IG”) rating. In the event that the rating falls into the

high yield (“HY”) category, the significantly expanded and

more international investor base becomes the key benefit

for the issuer enabling larger issue sizes and tighter pricing,

whilst a maturity extension may not be as significant.

However, regardless of the rating falling into the IG or HY

category, companies have an incentive to obtain a credit

rating as it enhances their funding options thus giving them

funding advantage over their unrated peers.

Whilst rating provides corporates with significant flexibility

in funding, such as longer maturities, cheaper funding,

wider and more international investor base and access to

private placements market, it is only rather recently that

we have noticed a clear change in attitudes towards

12

Finnish corporate bond issues – senior unsecured Exhibit 1

Source: Bloomberg, Pohjola Markets

Date Issuer CCY Amount (€m) Coupon Maturity Spread over m/s Rating

26-Jun-15 Forchem Oy EUR 70 4.900 Jul-20 ~433 nr24-Jun-15 Solteq Oyj EUR 27 6.000 Jun-20 ~549 nr17-Jun-15 Func Food Group EUR 38 Floating Jun-19 3mE+900 nr21-May-15 Technopolis EUR 150 3.750 May-20 340 nr12-May-15 Sponda EUR 175 2.375 May-20 200 nr06-May-15 Kemira EUR 150 2.250 May-22 170 nr24-Mar-15 Containerships EUR 45 Floating Apr-19 3mE+750 nr16-Mar-15 YIT EUR 100 6.250 Mar-20 597 nr11-Mar-15 Neste Oil EUR 500 2.125 Mar-22 178 nr13-Mar-15 Eagle Industries EUR 105 8.250 Mar-20 ~800 nr29-Jan-15 TVO EUR 500 2.125 Feb-25 148 nr/BBB/BBB14-Nov-14 HKScan EUR 100 3.625 Nov-19 335 nr12-Nov-14 DNA EUR 150 2.875 Mar-21 235 nr22-Sep-14 Citycon EUR 350 2.500 Oct-24 143 Baa2/BBB 18-Sep-14 Outokumpu EUR 250 6.625 Sep-19 ~610 nr16-Sep-14 Suominen EUR 75 4.375 Sep-19 400 nr08-Sep-14 Lassila&Tikanoja EUR 30 2.125 Sep-19 175 nr04-Sep-14 Ahlstrom EUR 100 4.125 Sep-19 370 nr26-Aug-14 Elenia Finance EUR 13 3.103 Sep-34 - nr/BBB18-Jul-14 Elenia Finance EUR 25 Floating Aug-29 6mE+145 nr/BBB03-Jul-14 Elenia Finance EUR 20 3.077 Jul-26 - nr/BBB

11-17_DCM_2016.qxd 9/10/15 09:36 Page 12


obtaining a rating. Corporates have been wary of resources

tied up in obtaining and maintaining the rating, especially

human resources and money. However, as corporates have

increasingly started to use debt capital markets as a

funding source and as a low interest rate environment

combined with tight spreads have made long-term funding

more attractive to them, many of them have started to view

the rating process more as a natural part of their funding

process. Furthermore, one can never underestimate the

power of example. Corporates that have more recently

obtained a rating have shown the benefits that are

available for a rated corporate. In our view, this

development will continue for the years to come.

The companies operating in capital intensive industries

have been active in debt capital markets and many of them

have either had a rating for years or have obtained a rating

more recently. Their issue sizes, total amount of bonds

outstanding or both often justify, and sometimes require, a

13

European and Finnish corporate issuance Exhibit 2


j Rated volume, €bn j Unrated volume, €bn——— Number of rated issues (rhs) ——— Number of unrated issues (rhs)

j Rated volume, €bn j Unrated volume, €bn——— Number of rated issues (rhs) ——— Number of unrated issues (rhs)

Europe

Finland

2010 2012 2012 2013 2014 2015

2010 2012 2012 2013 2014 2015

350

300

250

200

150

100

50

0

5

4

3

2

1

0

700

600

500

400

300

200

100

0

25

20

15

10

5

0

€bn

#is

sues

#is

sues

€bn

11-17_DCM_2016.qxd 9/10/15 09:36 Page 13


rating in order to be efficiently and economically able to

manage their debt portfolios. The recent “rating wave” was

started by Citycon obtaining ratings from Moody’s (Baa3)

and S&P (BBB-) in May 2013 (see Exhibit 3). Citycon, which

obtained the rating to increase funding flexibility and

extend its maturity profile provides a good example of

what a corporate can, at best, achieve by obtaining a credit

rating.

Citycon’s inaugural five-year €150m public bond issue was

priced at mid-swap +290 bps and allocated mostly to Finnish

investors (88%), whilst a year later, after obtaining the

rating from two agencies, the company issued a seven-year

€500m bond at mid-swap +245 bps and the majority of the

bonds were allocated to non-Finnish investors (74%) – i.e.

the credit rating enabled Citycon to issue a larger bond with

a longer tenor and tighter spread, whilst attracting

significantly more demand from a wider and more diversified

investor base. Furthermore, the spread of the inaugural

bond tightened by 110 bps in just over a year of which some

50 bps can be directly linked to obtaining the rating.

Fifteen months after the first rated bond Citycon issued a

10-year €350m bond following the rating upgrade from

both agencies (Baa2 by Moody’s and BBB by S&P) at mid-

swap +143 bps with the clear majority of bonds again

allocated to non-Finnish investors. In just over two years

Citycon transformed itself from a domestic five-year issuer

to an international issuer with access to 10-year funding by

obtaining a credit rating – so the company managed to

double the maturity whilst more than halving the spread it

paid over the relevant interest rate.

This development has not gone unnoticed by other Finnish

corporate issuers and whilst a credit rating does not suit

everyone there are plenty that would benefit from having

one and who would like to experience similar development.

SATO, a real estate development company focusing on

residential properties mostly in Finland, followed suit by

obtaining a rating from Moody’s (Baa3) in May 2015. Whilst

SATO had yet to issue a bond as a rated entity by the end

of H1/2015, it is only a matter of time before they put the

newly obtained rating to work.

14

Citycon bond spread development Exhibit 3


0

50

100

150

200

250

300

350

400

CITYCON 4 1/4 05/11/17

CITYCON 3 3/4 06/24/20

CITYCON 2 1/2 10/01/24

350

300

250

200

150

100

50

0

Bps

May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15

S&P issues inaugural BBB-rating

Moody’s places rating onreview for upgrade

S&P places rating onreview for upgrade

S&P upgrades rating to BBB

Moody’s upgrades rating toBaa2

Moody’s issues inauguralBaa3 rating

11-17_DCM_2016.qxd 9/10/15 09:36 Page 14

OP Financial Group is a co-operative banking group and marketleader in Finland. OP Financial Group provides a wide range offinancial services consisting of responsible investment, financingand insurance. Pohjola Bank plc is member of OP Financial Group.

Your reliable partner in capital markets services.

11-17_DCM_2016.qxd 9/10/15 09:36 Page 15


16

Another driver increasing the number of rated corporates

in Finland has been the debt capital market activity of large

international private equity and infrastructure fund-owned

companies. These funds have been actively refinancing

their acquisition funding and raising funds for future

investments from the debt capital markets. The funding

needs have been rather sizeable thus making the obtaining

of the credit rating a pre-requisite for the bond transaction.

Private equity and infrastructure funds are used to and

comfortable with operating in debt capital markets to meet

their financing needs as bank funding is often too

restrictive or short term for them. Recent examples include

stone wool insulation producer Paroc (B2 by Moody’s and

B by S&P) in June 2014 and Elenia (BBB by S&P),

previously Vattenfall’s Finnish electricity distribution and

heating business unit, in December 2013. Elenia cuts an

interesting figure in the rating landscape by falling into

both categories of issuers likely to obtain a rating –

infrastructure fund-owned corporate and operates in a

capital intensive industry.

There are currently 13 rated Finnish corporates, of which

four, or more than 30%, have obtained a rating in 2013-

2015ytd (see Exhibit 4). We expect the portion to rise to, or

at least near, 50% for the 2013-16 period. It would take five

new ratings by the end of 2016 to achieve this ratio, which

we consider fully possible.

We expect to see at least two to three new companies

obtaining a rating by the end of 2016 at the latest; the

number could well be twice as high subject to funding

needs, including investment decisions and potential

acquisitions. Whilst the number may not sound high we

consider it, combined with other recently rated corporates,

to be a relatively large number of new ratings compared to

the number of rated Finnish corporates prior to the recent

“ratings wave” at the end of 2012 (nine rated corporates).

We last witnessed a similar wave of newly obtained ratings

by Finnish corporates in 1997-98, then driven by the paper

industry. The current trend shows Finnish corporates’

changing attitudes towards credit ratings and also the

growing importance of debt capital market funding.

Pohjola Markets Rating Seminar, held in April 2015, serves

as another tangible example of Finnish corporates

contemplating the rating. The seminar, which included

Rated Finnish corporates – current ratings Exhibit 4


Bonds outstanding Company Moody’s S&P Fitch 1st rated (€m)

SATO Baa3 - - May-15 249Paroc B2 B - May-14 430Elenia - BBB - Dec-13 828Citycon Baa2 BBB - May-13 988Teollisuuden Voima (TVO) - BBB- BBB Sep-06 2,602Fortum Baa1 BBB+ A- Oct-02 5,076Elisa Baa2 BBB+ - Nov-00 600Metsa Board Ba2 BB - Nov-98 225Fingrid A1 A+ A+ Feb-98 749UPM-Kymmene Ba1 BB+ - Nov-97 954Metso Baa2 BBB - Jun-97 540Nokia Ba2 BB+ BB Mar-96 2,616Stora Enso Ba2 BB - Sep-89 2,270

11-17_DCM_2016.qxd 9/10/15 09:36 Page 16


guest speakers from Moody’s and S&P, attracted plenty of

interest with more than 20 corporate representatives from

some 15 corporates. We consider each corporate attending

the seminar as a potential for obtaining a rating in the

coming years, whilst a number of obvious candidates were

missing due to earlier commitments.

So who will be the next corporates to walk down the aisle

with the ratings agencies? One would do well to look

towards corporates in capital intensive industries, private

equity and infrastructure fund-owned assets, corporates

with significant re-financings at hand or simply those with

sizeable debt portfolios. Some obvious candidates are

Caruna, formerly Fortum’s Finnish electricity transmission

business unit acquired by infrastructure funds in 2014,

which can be likened with the case of Elenia and

Outokumpu, a Finland based global stainless steel

producer, that will see the coupon of its €250m bond

maturing in 2019 increasing by 100 bps unless it obtains a

rating by the end of Q1/2016. However, the pool of

corporate issuers contemplating a rating is sizeable

enough to provide some surprises.

We have seen the market developing towards the point

where it will become likely that a number of issuers will

decide to go for a rating to increase their funding options

and flexibility. It has taken somewhat longer than we

expected but we strongly believe that the trend that

started in 2013 will continue and strengthen in the coming

years. In our view, credit rating provides not only a

competitive edge for the corporate obtaining it, but also

develops the Finnish corporate bond market as a whole

and makes it more attractive for international investors.

Unrated issuers are likely to remain the larger portion of

the Finnish corporate market in terms of the number of

transactions. However, we expect the rated segment of the

market to challenge the unrated one even more heavily in

the future, volume wise. Furthermore, as more corporates

move from the unrated to rated market it will create

opportunities for new unrated issuers to fill the void and

provide new unrated investment opportunities for mostly

Finnish bond investors. We have already seen a few new

Finnish corporate issuers so far in 2015 and we expect this

trend to continue.

17Contact us:

Pohjola Bank plc

Teollisuuskatu 1, Helsinki, Finland

tel: +358 10 252 2360

fax: +358 40 5475 245

web: www.pohjola.fi

11-17_DCM_2016.qxd 9/10/15 09:36 Page 17


18

Johannesburg Stock Exchangeby Bernard Claassens, Johannesburg Stock Exchange

The JSE debt market was established in 2009, following the

exchange’s acquisition of the long-existing Bond Exchange

of South Africa (BESA).

The South African debt market is liquid and well developed

in terms of the number of participants and trading activity.

Roughly R25bn is traded daily. In 2014, the JSE debt market

raised R319bn, down 23% from FY2013.

Participants in the debt market comprise a number of

issuers, including primary dealers, who contribute to the to

increasing the liquidity of the debt market; special purpose

vehicles; corporates; government securities; banks; inter-

dealer brokers; agency brokers; issuers and investors.

Currently, there are nine primary dealers that contribute to

raising the liquidity of the bond market. Inter-dealer

brokers and agency brokers act as intermediaries between

the banks and investors respectively. Investors purchase

the instruments for their portfolios.

The types of bond issues are equally diverse and comprise

of corporate, government and convertible bonds;

commercial paper; asset-backed securities, mortgage-

backed securities as well as well as credit linked notes.

The JSE debt market is also home to the Repo Market.

Repo transactions contribute to bolstering the liquidity of

the JSE debt market, with daily funding exceeding R25bn.

Given the collateralised nature or the repo market, it

records daily trading spikes in excess of R200bn, making it

a highly liquid and efficient segment of the JSE debt capital

market.

Investors are also able to access the debt market through

corporate bonds. The first corporate bond issue was

issued in 1992. Since then, there have been 1,500

corporate debt instruments listed on the JSE, and these

instruments provide a way for the corporate entities

The Johannesburg Stock Exchange (JSE) is home to the most robust andlargest primary debt capital market on the African continent, with amarket capitalisation of R2 trillion. As such, South Africa’s primary debtcapital market plays a crucial role in facilitating capital formation for theeconomy and economic development.

Bernard Claassens

Johannesburg Stock Exchange

Tel: +27 11 520 7000

Email: [email protected]

18-19_JSE_DCM_2016.qxd 9/10/15 09:39 Page 18


concerned to raise money for large capital projects. In

2014, new debt issued by corporates and banks totalled

R187bn.

Government bonds also constitute the substantial share of

the debt market with these instruments accounting for

more than 90% of the JSE’s liquidity. The government

contributes to the lion’s share of nominal listings, as has

been the trend since the 2009 recession when it adopted a

counter-cyclical fiscal policy by increasing expenditure to

boost a slowing economy.

A diverse range of government entities, such as state-

owned companies and municipalities issue bonds by listing

them on the JSE Debt Board. As the key feature of the debt

market is to offer long-term capital, government entities

tap into the bond markets to raise capital for large

infrastructural projects intended for socio-economic and

sustainable development, such as roads and hospitals.

Given economic volatility uncertainty since 2008, fixed-rate

instruments have proven to be the most prominent

securities as they have enabled investors to lock-in

interest rates at the time of issue, thus providing certainty

about the cost of funding for the instrument’s duration.

Fixed-rate instruments account for 68% of total primary

listings on the JSE debt market.

The South African bond market remains resilient even with

high levels of volatility and global economic uncertainty

brought on by tapering of the US Federal Reserve Bank’s

Quantitative Easing programme and anticipated interest

rate hike.

In 2014, turnover, which is indicative of the liquidity of the

bond market, was R21 trillion, with 25% of this being

attributable to foreigners, and there are no restrictions on

foreign ownership of fixed income products. In 2014, 837

new bonds were issued, with the volumes increasing by

13% in comparison to the previous financial year.

Going forward, the JSE is collaborating with the National

Treasury and other market participants to implement an

electronic trading platform (ETP) for government bonds.

The development of an ETP is intended to align the JSE

with best practice of bond markets in developed

economies and also to improve transparency. It is

expected, that with time, the ETP platform will be made

available to primary dealers and other bond market

participants such as banks.

19Contact us:

Johannesburg Stock Exchange

One Exchange Square, Gwen Lane

Sandown, 2196 Gauteng, South Africa

Tel: +27 11 520 7000

Website: www.jse.co.za

18-19_JSE_DCM_2016.qxd 9/10/15 09:39 Page 19


20

Africa is callingby Martin Richardson, Rand Merchant Bank

A glut of excess liquidity – generated by expansionary

monetary policy in the aftermath of the GFC – was

channelled from exceptionally low-yielding environments

into high-beta investment destinations which were largely

uncorrelated with global happenings (Exhibit 1). African

economies, outside of South Africa, such as Egypt, Nigeria

and Kenya attracted scores of capital investors, post 2009.

While the tapering of asset purchases by the Fed has

somewhat tempered demand, sizeable capital injections by

the European Central Bank and Bank of Japan continue to

support the search for yield. Investors are still hungry for

high returns and continue to seek value in an array of

African assets. This has enabled local African entities to

tap the international market for funding, often for the first

time.

The sovereign debt boom

African sovereigns issued a record number of US dollar-

denominated bonds between 2012 and 2014 (Exhibit 2).

The love affair between global investors and Africa

flourished during this period, but rational thinking did not

always prevail. Typical warnings of a debt boom were met

with more aggressive bond structures, overly inflated order

books, greater volumes of hot money and banks, with no

African footprint, bringing deals to the market.

Given Africa’s chequered debt past, it could not afford a

high-profile market failure during this time. But economies

have stayed the course and met their funding

requirements, reflecting improved levels of governance and

macroeconomic stability relative to the early 2000s.

In the initial stages of Africa’s Eurobond bonanza, investors

painted African economies with broad brushstrokes with

little regard for idiosyncratic risks. However, this is slowly

starting to change. Like the American businessman Peter

Lynch says, “Know what you own, and know why you own

it.”

The Global Financial Crisis (GFC) was a boon not only for Africa’stelecommunications industry, with the likes of MTN and Helios Towerscoming to market, but for the continent as a whole as investors starvedfor yield turned their attention to unconventional markets.

Martin Richardson, Head of Debt Capital Markets London

Rand Merchant Bank

tel: +44 207 9391 730


20-25_DCM_2016.qxd 9/10/15 09:41 Page 20


Although the period of high levels of oversubscription and

record low yields has passed, African sovereigns and

corporates will continue to show a preference for

Eurobonds over concessional debt as a means of foreign

financing.

The rise of corporate Africa

Arguably, the euphoric investment sentiment that encircled

Africa’s Eurobond markets over the last three years is

starting to fizzle out. The experience did, however, awaken

investors to a number of credit opportunities in Africa and

has drummed-up support for new issuers like MTN

(telecommunications), FirstRand (banking), Naspers

(e-commerce, online services and print media), Sasol

(energy and chemicals), Puma Energy (mid- and

21

IIF EM inward portfolio investment Exhibit 1

Source: IIF, RMB

200

150

100

50

0

–50

–100

US$

bn

1998 2003 2008 2013

Africa’s sovereign borrowing spree (excluding South Africa) Exhibit 2

Source: Bloomberg, RMB

3

2.5

2

1.5

1

0.5

0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Ken

ya

Gab

onG

hana

Ang

ola

Con

go

Ang

ola

Cot

ed’

Ivoi

reSe

yche

lles

Nig

eria

Sene

gal

Nam

ibia

Zam

bia

Ang

ola

Gab

onG

hana

Nig

eria

Rw

anda

Tanz

ania

Moz

ambi

que

Cot

ed’

Ivoi

reG

hana

Sene

gal

Zam

bia

Ethi

opia

Cot

ed’

Ivoi

reG

abon

Zam

bia

US$

bn

20-25_DCM_2016.qxd 9/10/15 09:41 Page 21


22downstream energy provider), Petra Diamonds (diamond

producer) and Shoprite (retailer) (Exhibit 3).

Africa’s capital markets have evolved along traditional lines

with sovereigns leading the charge by setting a pricing

reference point for state owned enterprises and banks.

Corporates have been a little slower to dip their feet into

international waters, but are progressively turning to the

offshore market to support expansion plans that

necessitate capital in excess of what can reasonably be

raised from traditional sources (Exhibit 4). In many

instances, the cost of local borrowing is becoming more

onerous for local firms as commercial banks adjust to

stricter regulatory requirements.

This is evident in Nigeria. Between 2011 and 2013, four

tier-1 Nigerian banks issued maiden Eurobonds, totalling

US$1.45bn. Rising interest rates and tighter domestic

liquidity conditions prompted First Bank and Access bank

to tap the international market once again in 2014 and

together with Zenith, Diamond and Ecobank raised a total

of US$1.75bn in debt.

Nigeria’s foray into the international debt market laid the

foundation for corporate issuance outside of the banking

and oil sectors. The shift in its consumer growth patterns

has also translated into a significant broadening of

issuance, as companies in consumer-driven industries such

as telecommunications, energy, real estate and banking

turn to capital markets to finance their growth.

In 2014, Helios Towers Nigeria issued a US$250m RegS

Senior Unsecured Guaranteed Bond, offering real money

investors the opportunity to gain exposure to a non-

financial, Nigerian-focused corporate. Their issuance

marked the first US dollar-denominated African

telecommunications deal since December 2007 and

recorded the lowest ever coupon for an inaugural Nigerian

corporate offering.

The African bond universe has, indeed, changed

dramatically over the last five years. In 2010, South Africa

accounted for 69% of Africa’s total internationally-

marketed dollar-denominated bond issuances. Its

percentage shrank to 31% in 2014 and stands at a paltry

10% in 2015, reflecting two recently evolving themes:

Recent African corporate issues Exhibit 3

Source: Bloomberg, RMB London

NaspersPumaShoprite (ZAR convertible)MTN

SasolPetra DiamondsFirstRand

Dec14 May16 Sep17 Feb19 Jun20 Oct21 Mar23 Jul24 Dec25 Apr27

Maturity

9

8

7

6

5

4

3

2

1

0

%

20-25_DCM_2016.qxd 9/10/15 09:41 Page 22


1. The headwinds faced by the South African economy

have softened growth prospects, limiting the need for

debt to finance expansion.

2. There is a broader acceptance that African credits

(outside of SA) will access international capital

markets as a viable alternative for longer-term funding.

Under pressure

The durability of African debt will be tested by the ever-

changing global backdrop and country specific-risks.

Investors should be mindful of what this means for African

economies.

The global outlook is cloaked by uncertainty over the

cyclical downturn in commodities’ prices, a deterioration in

geopolitical tensions, a correction in financial markets led

by monetary policy normalisation in the US, secular

stagnation, particularly in advanced economies, and a hard

landing in China.

The principal risk to advanced economies is stagnant or

weak potential growth, while emerging markets are

imperilled by widening output gaps. The Eurozone and

China remain at the forefront of these global growth fears,

threatening the growth in African exports. Growth

prospects across the Eurozone are lopsided suggesting a

delicate recovery in regional growth. Eastward, investment

and credit continue to underlie China’s growth, with

activity indicators reflecting a gradual moderation.

Across the Atlantic, the Federal Reserve’s “normalisation”

of policy rates is unnerving EM and frontier bond investors

as the cost of US dollar-denominated borrowing is

expected to rise. A far more palpable risk is a further

moderation in commodities prices from prevailing levels.

The oil price slump is a prime example of resource-reliant

countries coming under pressure – Angolan and Nigerian

current accounts are heavily dependent on funding from oil

revenues. A substantial push above US$55/bbl. appears

doubtful over the short term given the dichotomy between

23

Number of corporate issuances since 2008 Exhibit 4

Source: Bloomberg

16

14

12

10

8

6

4

2

0

Issuance count Issuance amount (RHS axis)7,000

6,000

5,000

4,000

3,000

2,000

1,000

Mill

ions

2008 2009 2010 2011 2012 2013 2014 2015

20-25_DCM_2016.qxd 9/10/15 09:41 Page 23


24

current supply and demand. African oil producers and their

local corporates will face less favourable market conditions

due to weakening fundamentals which should heighten

refinancing risks. This has already been evident in the

200bp repricing of the Nigeria 2021 Eurobond over the last

12 months.

In light of these global factors, the overarching risk to Africa

is that unwarranted public debt could erode the economic

growth prospects of many countries across the continent.

While Africa’s gross debt-to-GDP ratio has averaged around

30% since 2004, its debt stock has risen by more than

166%. This is particularly concerning in East Africa where

economies like Kenya have struggled in the past to contend

with debt overhang. Corporates are slightly less exposed

than sovereigns, as the ratio of hard currency corporate

bonds to GDP across the universe of African issuers,

remains low. This underscores the growth potential of this

market segment over the longer term.

December 2014 saw a blowout in EM credit spreads and

Africa did not escape unscathed. Broadly speaking, most

credits have tightened since then with the exception of any

names directly related to Nigeria and/or oil. One can argue

that the historical trend of indiscriminate investment

behaviour could lead to a credit bubble and risk a

disorderly exit from a distressed African corporate.

However, our sense is that the early hot money has been

replaced by the longer term holders and therefore we gain

comfort that the broader EM experience suggests that

investors will seek some form of restructuring rather than

an outright default. Encouragingly, a debt sustainability

analysis of SSA’s poorest countries reflects low or moderate

debt distress for the majority of issuers.

Given the plethora of risks, we believe that Africa’s

corporate bond markets need to be nurtured to enhance

their size and levels of sophistication to manage global and

domestic headwinds. The absence of a sound institutional

investor, benchmark yield and active secondary market will

severely limit the scope for investment.

Currency risk is also often underestimated. The cost of

servicing a US dollar-denominated debt might appear

cheaper than that of a local issuance, but rampant

exchange rate weakness will cause the cost of foreign

borrowing to rise. This type of risk is more pronounced if

the borrower is dependent on the exports of one or two

commodities for revenue and foreign exchange, as is the

case with oil and gas companies, specifically in Nigeria.

Are governments up for thechallenge?

The ability of African governments to contend with

prevailing challenges will influence the premium that

investors demand to compensate them for idiosyncratic

risks. Commodity-producing economies will come under

intense scrutiny as they attempt to navigate flagging

prices.

While the impact of a dwindling oil price appears worse on

paper for Angola than Nigeria, the Southern African nation

is better placed to manage the fallout. The Angolan

government has made significant attempts to cut

expenditure to help its struggling budget balance. To name

a few, it cut the fuel subsidy to unlock spending of around

US$2.2bn for much needed infrastructure development

among other things. Angola imports most of its fuel due to

its limited refining capacity and has spent 4% of GDP on

subsidies in 2014. The two fuel price hikes in 2014 of 20%

each have already saved the government US$1bn.

Furthermore, state-owned companies have been ordered to

reduce running costs by 30% and investment by 50%, and

most public investment projects planned by the ministry of

transport have been suspended. Most importantly,

parliament approved a decrease in the oil price assumption

in the 2015 budget from US$81/bbl to US$40/bbl, which

the finance ministry said would reduce the overall budget

by US$14bn. Moreover, the government has asked China

for a two-year suspension on existing debt payments and

for further credit to be extended. That said, the directness

of Angola’s funding request highlights the dire situation

following the oil price fall and leads to another concern of

whether debt levels will become unmanageable.

Nigeria’s options are a little less clear-cut given that a

Finance Minister is yet to be appointed to President

20-25_DCM_2016.qxd 9/10/15 09:41 Page 24


Buhari’s cabinet. A lack of policy direction will weigh on

investment as the economy will be subject to the budget

measures enacted by the former administration in May

2015, while a new candidate is sought. Having downwardly

revised its forecasts earlier in May, the finance ministry

announced that the fuel subsidy will be slashed by 90%,

freeing up almost US$5bn of much-needed funding. While

the withdrawal of the petroleum subsidy might assist in

realigning the government’s spending bias, it is likely to be

met with widespread criticism as the aid is perceived to be

an indirect form of wealth redistribution to the poor. The

bottom line is that the projected long-term decline in oil

revenue poses a broader socioeconomic risk if state and

local governments, which are already in financial disarray,

begin to compromise on service delivery in key areas such

as healthcare and education to accommodate lower

expenditure.

For Zambia, copper prices are still far off from the

budgeted level of US$6,780; the reversal of increased

mining royalties will weigh heavily on government

revenues; subsidies on maize will stretch the budget

further; and we remain sceptical whether significant

spending cuts are likely given the general election in 2016.

We remain concerned over the debt-financed spending and

will keep a close eye on whether the funding is used for

much-needed infrastructure projects otherwise the fiscal

position will become unsustainable. So far the government

has made some attempts to shore up funding: it has sold

US$80m worth of shares in the state-owned mining

investment company, ZCCM IH, while the fuel price hike will

take some strain off public finances. Zambia might also

save around US$670m by starting new projects only when

current ones are completed. No indication was given of

where the funds will be allocated but, with domestic

borrowing costs rising, it will offer some respite to the

budget.

Outlook for future issuance

There are a few themes we expect to play out over the next

few years. Firstly, investors are demanding greater

transparency with regard to the use of proceeds, the

structure of debt and how mandates are originated, which

is very positive for Africa’s capital markets. Secondly,

investors are expected to continue to move away from a

“shotgun” approach to African credit and move towards

more selective investments. Thirdly, it is no secret that the

Nigerian oil & gas industry has been hit by the perfect

storm of several highly leveraged and fully priced M&A

transactions that closed before the oil price collapsed. As

this scenario plays out over the coming few years, and new

players look to pick up bargains, bonds will be used as

part of the restructuring and refinancing of distressed

assets.

25

Contact us:

Rand Merchant Bank (a division of FirstRand Bank)

2 – 6 Austin Friars

London EC2N 2HD, UK

tel: +44 207 939 1700

web: www.rmb.co.za

20-25_DCM_2016.qxd 9/10/15 09:41 Page 25


26

SGX: The ideal partner in the Asian bond marketby Singapore Exchange

While the market is expected to continue to grow,

challenges remain. Bond markets have traditionally been

“quote-driven” where investors extract liquidity from

principal market makers. Post-global financial crisis, global

market makers have scaled back their principal market

making activities even in the face of increasing bond

market capitalisation. This has caused increasing

fragmentation of the secondary market for Asian bonds

with liquidity to shifting towards end investors and

regional dealers.

Singapore Exchange (“SGX”), as Asia’s leading market

infrastructure provider, has a key role to play in capital

formation by making it easier for issuers to tap the primary

markets and lowering funding costs by increasing liquidity

and aggregating fragmented liquidity.

SGX is making it easier for issuers to tap primary markets

by providing Asian debt issuers with a credible, efficient

and transparent venue for listing their debt. SGX also

operates a platform for OTC trading of Asian bonds to meet

the liquidity demands of a global investor base. As data is

vital for a vibrant and liquid market, SGX provides valuable

tools to ensure transparency and access to metrics that

enable informed investment decisions.

This article provides highlights of SGX’s role as a pioneer

within Asia’s bond market, and credentials that make it an

ideal partner for the growing network of active

participants.

A strong and deep bond listingvenue

SGX is today the preferred venue among issuers to list

bonds in Asia, and holds a market share of around 40% in

the listed Asia Pacific G3 currency bond market.

SGX has grown its market share by offering a trusted

platform to reach an international investor base – from

facilitating fund raising and investor outreach, to enabling

the execution of corporate actions and fulfilment of

regulatory and corporate governance obligations. Its

efforts to improve bond market infrastructure as well as

transparency in the secondary market also enhance SGX’s

attractiveness as a highly connected and increasingly

liquid bond market.

Particular benefits of SGX as a listing platform of choice

include its clear regulatory framework, [predictable and]

efficient listing process as well as ability to ease post-

listing issuer requirements. In addition, SGX offers strong

connectivity with international investors and a valuable

The Asian bond market, which includes local and G3 currency governmentbonds and Asian corporate issuer bonds, has burgeoned to more thanUS$8 trillion in value (excluding Japan), propelled by positivemacroeconomic trends, infrastructure financing needs as well ascorporate capital expenditure financing needs.

26-30_DCM_2016.qxd 9/10/15 08:17 Page 26


27

Regulatory and efficiency benefits of listing bonds on SGX

SGX’s clear and market-oriented regulatory framework ensures that listing rules are straight forward in application and

provide a predictable timeline, reducing any delays.

Most issuers are not subject to the prospectus requirements prescribed by the Securities and Futures Act (SFA), since

on average 80% of bond issuances on SGX are subscribed to by institutional and accredited investors.

Its secure online e-Submission System enables a fast processing time of one business day for bonds that are

distributed to institutional and accredited investors. The efficient process helps to ensure timely access to the debt

capital markets.

Straightforward post listing requirements with easy execution of issuer obligations

SGX understands the importance of facilitating the fulfilment of post-listing obligations, as well as protecting investors

by ensuring timely, full and fair disclosure. SGXNet provides a secure online portal that enables issuers to easily and

efficiently distribute material company announcements, which are then published on SGX’s website. The structured

format submission eases the burden of filing announcements, and the immediate dissemination of information is

valuable in building connectivity with global investors.

Choice listing venue for debt securities in Asia Exhibit 1

Source: SGX, as of September 30, 2015

26-30_DCM_2016.qxd 9/10/15 08:17 Page 27


28

channel through which to profile securities to a global

audience.

SGX Bond Pro bringing liquidity toAsia’s bond market

By December 2015, SGX will launch ‘SGX Bond Pro’, Asia’s

first dedicated Over-the-Counter (OTC) electronic trading

platform for Asian bonds, connecting buyers and sellers of

Asian bonds.

SGX Bond Pro will initially offer Asian bonds denominated

in G3 currencies, with Asian bonds denominated in local

currencies expected to follow. It has been developed in

close consultation with the industry and will offer a trading

experience that will cater to the different needs of market

participants, including dealers, market makers and

liquidity providers and institutional investors.

The platform will cover different market places (Dealer-to-

Client, Dealer-to-Dealer and All-to-All) to suit the different

liquidity needs of participants and offer different trading

protocols designed specifically for each market place. In

addition, SGX Bond Pro will have a General Counterparty,

which will act as an intermediary and increase market

connectivity, and therefore liquidity, by allowing

participants who do not have bilateral relationships to

transact. The General Counterparty role also helps to

ensure controlled information disclosure, separate pricing

from settlement risk and reduce legal and back office

processes for market participants.

SGX Bond Pro encourages participant adoption by lowering

integration costs through an “Open Access” model. Trading

protocols are FIX compliant and support FIX best practices

in order to standardise the integration process and we

encourage full integration with any third party Order

Management System (“OMS”), Execution Management

System (“EMS”), gateway providers and other liquidity

venues.

Using market data to enhancetransparency across the Asia bondmarket

Given the role and importance of data and transparency in

building trust within the market and underpinning liquidity,

SGX has taken valuable steps to enhance this in its market.

Evaluated bond pricesAddressing the historic lack of shortage of public price

information in the secondary OTC bond market, which

presents a big challenge to the assessment of debt

securities, SGX offers an independent evaluation of SGX-

listed debt securities via its Evaluated Bond Price (EBP)

webpage.

Using market data and modelling techniques, the EBP

provides users with a reference point for bond value and

helps guide investors’, and other participants’, assessment

of the securities. SGX has enhanced access to reference

data on 90% of the debt securities listed on SGX through

an intuitive search function.

Enhancing liquidity withSGX Bond Pro Exhibit 2

Source: SGX, as of October 2015

26-30_DCM_2016.qxd 9/10/15 08:17 Page 28

Trade defined Singapore. Now we’re redefining trade.

Singapore Exchange

From a modest trading post, Singapore has grown into a global commercial hub with one of the world’s busiest ports and largest financial centres.

Singapore Exchange is at the heart of the action, connecting Asian companies and investors to global capital, and global investors and companies to Asian growth.

We help investors and clients transform opportunities into reality, through solutions that anticipate their needs and are supported byworld-class regulations.

More than a platform for commerce, we see ahead and stay ahead, to build and foster trade.

sgx.com

26-30_DCM_2016.qxd 9/10/15 08:17 Page 29


30

Fixed income indices The development of fixed income indices for both retail

and institutional clients has also helped to deepen market

transparency. SGX recently introduced the TR/SGX “SFI”

series of SGD Bond Indices in collaboration with Thomson

Reuters, which comprises 60 indices across various

segments of the SGD bond market.

Indices such as TR/SGX “SFI” provide investors with

valuable metrics to enable better benchmarking of

investment performance, and better informed investment

decisions. By linking indices to tradable investment

products such as Exchange Traded Funds (ETFs), it also

broadens the scope of investable asset classes, and helps

to drive liquidity of the underlying bond market.

Meeting the demands of the Asianbond market

Over the past 15 years, the local currency bond market in

Asia (excluding Japan) has grown at a CAGR of nearly 17%,

and with the region’s expected economic growth and

mounting infrastructure requirements, issuer demand for

access to the bond market as a source of financing is

expected to continue.

At the same time, we are seeing rising international

investor appetite for Asian bonds, as they increasingly

seek diversified multi-asset exposure and look beyond

their core portfolios.

While these trends are complementary, obstacles to both

access and availability across the Asian bond market

remain, and SGX is playing a key role in breaking these

down by building out the essential bond market

infrastructure needed to enhance flow and liquidity.

By providing a robust platform for corporates to issue

bonds, SGX facilitates access to both capital expenditure

and general investment financing, which is essential to

support the growth of the Asian corporate sector. At the

same time, this is helping to address the under-supply of

corporate bonds relative to growing investor demand, and

is further enhanced by efforts to improve secondary market

access and liquidity.

SGX will continue to work closely with the Asian issuer and

investor communities to improve and customise the market

infrastructure to meet the evolving needs of all market

participants in Asia.

Contact Us:

Singapore Exchange

2 Shenton Way, #02-02, SGX Centre 1

Singapore 068804

tel: +65 6236 8888

web: www.sgx.com

26-30_DCM_2016.qxd 9/10/15 08:17 Page 30


31

Australian debt capital markets: Strong, stable and growingby Paul Jenkins, Jamie Ng and Caroline Smart, Ashurst

Rise of the domestic market

The Australian domestic capital markets have seen robust

levels of issuance in recent years, standing at A$474bn in

non-government, non-matured issuance in 2014.1 In 2014

Australian vanilla issuance totalled almost A$114bn, up

A$9bn from 2013.2 With current issuance standing at

A$81.58bn as at September 16, 2015,3 it appears that levels

could match, if not surpass, 2014 volumes.

Particularly on the rise has been corporate issuance – an

area that the Australian market is very keen to see grow.

Recent high-profile domestic issuances by major

corporates such as SABMiller, raising A$700m in July 2015,

BHP Billiton, raising A$1bn in five-year notes in March

2015, Telstra raising A$500m in seven year notes in

September 2015 and Apple raising a record A$2.25bn on

four and seven-year notes in August 2015 indicate

increasing demand from Australian and Asian investors.

They also highlight the willingness of the Australian market

to support large volume issuances.

Financial institution issuance, both domestic and

Kangaroo, has long been the backbone of the Australian

market and has remained robust throughout 2014 and

2015. There has been significant benchmark issuance by

domestic and foreign banks as well as insurers, including

Rabobank’s first Basel III tier-two compliant Kangaroo

issue in June 2015. Additionally, 2014 saw the arrival of

Australia’s first green bond, issued by the World Bank, with

five following issuances by both banks and corporates in

2014/15. Hybrid and high-yield issuance has also been on

the up.

Such increase in market issuance is a result, among other

things, of Australia being perceived as a stable market with

increasing opportunities to reach a wider investor base, as

the Australian superannuation industry and self-managed

superannuation funds look to fundamentally diversify their

portfolios.

Issuing in AustraliaThe Australian bond market is primarily made up of bank,

corporate and Kangaroo issuers.

In 2014, 116 deals raised A$46.57bn for non-government

domestic issuers. Financial institution issuers are the most

active in the market, accounting for 63% of all domestic

non-government bonds issued in 2014, compared with

corporate issuers who accounted for 37%.

Kangaroo bonds account for roughly a third of all

It is an exciting time for the Australian bond market. While relatively smallcompared to European, US and Asian markets, the market is sophisticated,strong, stable and expanding. With issuance on the up, new productsmaking an entrance and a commitment from government and industry togrow domestic corporate issuance, now is the time to look at whatAustralia can offer issuers and investors to execute successful issuance.

31-36_DCM_2016.qxd 9/10/15 10:41 Page 31


Australian issuances. As at September 2015, Kangaroo

issuance stood at just under A$29bn,4 compared with

approximately A$39bn raised in 2014.5

For the half year to June 2015, corporate issuance stood at

US$4.4bn.

While investment grade bonds with five to seven-year

tenors continue to make up a large portion of the market,

there has been increasing interest in 10-year bonds. In May

2015, major logistics operator Asciano made its domestic

debut raising A$350m through the issue of 10-year bonds,

the largest Australian 10-year corporate bond deal since

2007. Reports also indicate that while ultimately not

pursued, Australia’s largest telco Telstra had also

considered issuing 10-year bonds in September 2015.

Although 10-year bonds have yet to be issued at

benchmark levels, the Asciano deal and Telstra’s initial

interest in a 10-year bond highlights the continued

deepening of domestic market tenors.

Kangaroo issuance trendsIn 2014, around 50% of Kangaroo bonds were issued by

banks, 40% by sovereigns and supranationals and 10% by

non-bank financials and corporates.6 While the majority of

Kangaroo issuers are AAA-rated entities, issuances by non-

AAA issuers increased from 30% in 2013 to 40% in 2014,7

highlighting increasing market depth and investor appetite

for lower rated bonds.

Ease of doing deals in Australia

In practical terms, Australian issuance is a cost-effective

and easily accessible option for issuers seeking to raise

funds through the debt capital markets. The geographical

diversity of investors in the Australian bond market,

representing both domestic and Asia-based investors,

coupled with the potential for greater investment by the

Australian superannuation industry adds further depth to

the market. Continued interest in portfolio diversification

by both issuers and investors is resulting in innovations to

the market, allowing for more varied investor criteria to be

accommodated.

Wholesale and retail issuanceThe majority of bond issuance in Australia is wholesale

issuance. Wholesale issuances are put together through a

book build process, are mostly traded OTC and are only

available to wholesale and sophisticated investors.

32

Bond issuance 2014 Exhibit 1

Source: KangaNews

Kangaroo issuers Exhibit 2

Source: Reserve Bank of Australia

A$m

45,00040,00035,00030,00025,00020,00015,00010,000

5,0000

Kangaroo Bank Corporate(domestic) (domestic)

Banks

Sovereigns andsupranationals

Corporations

31-36_DCM_2016.qxd 9/10/15 10:41 Page 32


Wholesale issuances are the most cost-effective and

efficient way to issue bonds in Australia. Most wholesale

issuance is unlisted and issued under debt issuance

programmes. Provided the requirements for an exemption

from the disclosure requirements of part 6D of the

Corporations Act 2001 (Cth) are met, wholesale issuances

do not require a prospectus. Instead, it is customary for

issuers to produce a short form information memorandum

that sets out the terms and conditions of the notes as well

as a pro forma pricing supplement, relevant selling

restrictions and taxation information. There is no

requirement to produce a description of the issuer or

include a risk factor section, although in practice it is usual

to provide information on the issuer’s business. The

issuer’s legal obligation is to ensure that its information

memorandum or any other offering material is not

misleading or deceptive. Programme documentation

otherwise generally includes a dealer agreement, a note

deed poll and an agency and registry services agreement.

As the information memorandum for an unlisted wholesale

senior debt issuance programme does not need to be

reviewed by a regulatory authority, establishment of an

Australian medium-term note or debt issuance programme

can be achieved very quickly.

In order to qualify for an exemption from having to produce

a prospectus, the bonds must, for example, be issued to:

(i) a professional investor (or “wholesale investor”) who

has or controls gross assets of at least A$10m, or (ii) a

sophisticated investor who purchases a minimum amount

of bonds of no less than A$500,000 or who has net assets

of A$2.5m or a gross income for the past two financial

years of A$250,000 or more, as provided in a certificate

from a qualified accountant.

Retail issuances comprise a much smaller component of

corporate bond issuance in Australia. Although they are

able to reach all potential investors, there are significant

regulatory requirements that add expense and time to an

issuance. Retail bond offers require the issuer to produce a

full disclosure prospectus. Most retail bonds are listed, in

order to facilitate trading and transparency for retail

investors, and must therefore also meet the listing rule

requirements of the ASX. These require the issuer to be a

public company or other ASX-approved entity, to have

either net assets of A$10m or a parent with net assets of

A$10m who will guarantee all bonds for the period of

quotation, and to meet continuing disclosure obligations.

Although still low in volume compared to wholesale

issuance, retail bond issuance in Australia has been

increasing in the past few years. Government support for

the continuing development of a fixed income market has

seen legislation passed that simplifies retail issuance

disclosure rules for certain vanilla or “simple” corporate

bonds. For “simple” corporate bonds, issuers can take

advantage of a less onerous prospectus regime. “Simple”

corporate bonds must: (i) be ranked senior unsecured and

pari passu with the issuer’s other senior secured debt;

(ii) be unsubordinated excepted to secured debt; (iii) be

Australian dollar-denominated; (iv) have a first tranche

minimum offer size of A$50m; (v) be listed on a recognised

stock exchange; and (vi) have a tenor of no more than

15 years.

33

Paul Jenkins

Partner, Finance Division

tel: +61 2 9258 6336


Jamie Ng

Partner, Securities & Derivatives Group, Australia

tel: +61 2 9258 6753


Caroline Smart

Senior Foreign Associate

tel: +61 2 9258 6460


Paul Jenkins Jamie Ng Caroline Smart

31-36_DCM_2016.qxd 9/10/15 10:42 Page 33


Bonds issued in Australia are issued in registered form, as

bearer bonds can be subject to interest withholding tax.

Bonds are constituted by a note deed poll and, if unlisted,

are usually cleared through the Austraclear clearing

system.

InvestorsDomestic investors, namely insurance and investment

funds, comprise a large percentage of the overall investor

distribution of corporate and financial institution bonds.

Domestic investors are particularly dominant in the

distribution of bonds issued by Australian financial

institutions. Asian investors also play a role in the

Australian market, taking up at least 9% of all reported

corporate bond distributions as at September 10, 2015,

with even higher levels of investment reported in relation

to issuances by financial institutions. Offshore investors

typically account for greater levels of investment in

Kangaroo bonds, with reported distribution figures

indicating domestic investors typically take up less than

50% of Kangaroo issuance.

Growing the marketThe Australian Government and industry players are

committed to developing a larger bond market in Australia

with greater breadth and depth.

A key reason for this stems from the increasing need of

Australia’s superannuation industry for portfolio

diversification. Australia has a compulsory superannuation

system which is comprised of the third largest pool of

private pension funds in the world. Australian

superannuation assets were valued at A$2.02 trillion in

June 2015, a 9.9% increase over the previous 12 months8,

and are expected to grow to A$3.5 trillion by 2025.9 Also

on the increase are self-managed superannuation funds

(SMSFs).

Historically, Australian superannuation funds have

favoured equity over fixed income investment – in part a

result of Australia’s investor-friendly dividend imputation

laws, which favour equity investments with preferential tax

treatment. However, industry and investor aims to achieve

greater portfolio diversification require a greater focus on

fixed income investments. Coupled with Australia’s ageing

demographic and the consequences this has for requiring

greater, predictable income-generating revenue in the

retirement phase of a pension scheme, there is rising

demand for fixed income investments. It is expected that a

likely consequence will be a steady increase in Australian

bond market investment.

At the regulatory and legislative level, the Australian

government has introduced measures to encourage a

broader range of issuance types and to increase retail

investor access so as to allow more SMSFs to participate in

fixed income investment. Such measures include

increasing the range of eligible debt securities issuable by

Australian banks and reducing regulatory and documentary

requirements for the issue of retail securities, such as

reduced disclosure requirements for “simple” corporate

bonds as mentioned above. Industry measures and

innovations have seen the development of managed

investment schemes, mutual funds and exchange traded

funds and methods to reduce minimum purchase amounts

from A$500,000. In 2105 it became possible for retail

investors to purchase exchange traded bond units, known

as XTBs, which are units in a fund that holds certain

corporate bonds. XTBs may be bought for low

denominations, for example A$100, whereas the minimum

denomination of the underlying bond may be A$10,000.

Growing the asset classNot only has the domestic market, inclusive of corporate

issuance, been growing but so has the asset class itself. In

recent years, Australia has seen successful high yield,

hybrid and green bond issuance.

Opening in 2012 with a A$30m issuance by Silver Chef,

Australia’s high yield market experienced a growth phase

in 2014, increasing in size to A$1.5bn in issuance over the

18 months to January 2015.

Australia has demonstrated an appetite for green bonds in

line with international demand. The first green bond was

issued in Australia by the World Bank in 2014 and five

further deals have followed, including a A$300m issuance

by National Australia Bank in December 2014 and a

34

31-36_DCM_2016.qxd 9/10/15 10:42 Page 34

www.ashurst.comAUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE)ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA (ASSOCIATED OFFICE) SINGAPORESPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

From investment grade corporate bonds and high yield through to regulatory capital, hybrids,convertibles, green, Islamic, retail, project bonds and more, we leverage our global know-how to bring cutting edge understanding to the domestic market, wherever that may be.

Delivering solutions not just adviceAshurst’s global debt capital markets team spans the world’s majorand developing commercial centres and comprises specialists thatwork across all areas of debt capital markets.

“An impressive practice which handles abroad range of high profile transactions.”Chambers Asia-Pacific, 2015

“Ashurst is professional, concise andcustomer-driven.”Chambers UK, 2015

“Successful practice advisingunderwriters, managers and issuerson bond programmes, covered bonds,hybrid bonds and Schuldschein loans.”Chambers Germany, 2015

31-36_DCM_2016.qxd 9/10/15 10:42 Page 35


36

A$600m issuance by Australia and New Zealand Banking

Group in May 2015. Foreign investors have also shown a

strong interest in green bonds issued in the Australian

bond market, with 64% of the A$600m Kangaroo green

bond issued by KfW Bankengruppe in 2015 sold to offshore

investors.

Hybrid bond issuance by banks has remained strong over

the past two years. In 2014, A$14.5bn was raised through

the issuance of hybrid bonds.10 Hybrid issuance remained

strong in 2015, with around A$7.5bn raised by Australian

banks as at May 2015.11

Conclusion

In summary, the Australian bond market is growing. Trends

in 2014 and 2015 demonstrate investor willingness to raise

benchmark amounts not only for financial institutions but

also highly rated corporates. Appetite for different

products has been demonstrated and government and

industry are committed to growing domestic corporate

issuance and the investor base. With portfolio

diversification a pressing need for Australia’s large and

expanding superannuation industry, there is real potential

to deepen the Australia market, increase tenor and

continue to grow the asset class.

Notes:

1 Australian Financial Markets Association, 2014 Australian Financial

Markets Report, 2014, p 6.

2 KangaNews, 2013 All-AUD Domestic Vanilla Bonds League Table

(including self-led deals); KangaNews, 2014 All-AUD Domestic Vanilla

Bonds League Table (including self-led deals).

3 KangaNews, 2015 All-AUD Domestic Vanilla Bonds League Table

(including self-led deals), September 16, 2015.

4 KangaNews, 2015 Kangaroo Bond League Table (including self-led

deals), September 10, 2015.

5 KangaNews, 2014 Kangaroo Bond League Table (including self-led

deals).

6 Reserve Bank of Australia, Statement on Monetary Policy, February 5,

2015, pp 51-52.

7 Ibid.

8 Association of Superannuation Funds of Australia, Superannuation

Statistics, August 2015.

9 KPMG, Supertrends, 2015, p 8.

10 Reserve Bank of Australia, Statement on Monetary Policy, February 5,

2015, p 56.

11 Reserve Bank of Australia, Statement on Monetary Policy, May 7,

2015, p 49.

Contact us:

Ashurst Australia

5 Martin Place, Sydney

NSW 2000, Australia

tel: +61 2 9258 6000

web: www.ashurst.com/financehub

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37

Financing through debt capitalmarkets in Japan by non-Japaneseentitiesby Tsunaki Nishimura, Anderson Mori & Tomotsune

Type of debt financing available toforeign entities

Japan is one of the most active markets for various

domestic and overseas entities to raise funds by way of the

issuance of bonds and/or notes. For foreign issuers who

consider issuing and offering bonds and/or notes in Japan,

(i) primary offering of Samurai bonds, (ii) secondary

distribution of Euro Medium Term Notes, and (iii) private

placement of bonds through Tokyo Pro-Bond Market are,

among others, workable and popular options. A brief

overview of each method of raising funds as well as the

practical issues and recent developments can be found

below.

Primary offering of Samurai bonds

OverviewThe term “Samurai Bonds” refers to a specific type of

security: namely, Japanese yen-denominated straight

bonds issued in Japan by foreign issuers. In practice, most

Samurai Bonds are sold by way of a primary offering

(boshu) to the Japanese public. Typical offerings of

Samurai Bonds are conducted by foreign financial

institutions, offering more than one tranche of bonds

consisting of combinations of fixed rate bonds and floating

rate bonds.

Offering processIn a public offering of Samurai Bonds in Japan, the issuer

of such bonds is required, except in certain limited

circumstances, to file a securities registration statement

(an “SRS”) with a competent authority via the Electronic

Disclosure for Investors’ NETwork (EDINET) in accordance

with the Financial Instruments and Exchange Act of Japan

This article intends to introduce the bigger picture of debt capitalmarkets in Japan used by foreign issuers from a legal and practicalperspective.

Tsunaki Nishimura, Partner


tel: +81 3 6888 5823

fax: +81 3 6888 6823


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(the “FIEA”). An SRS consists of, in general, (i) a securities

information part and (ii) a company information part

including financial statements. The form of SRS differs for

a sovereign issuer (i.e. a national or local government or

agency thereof, a supernational organisation, or a

government-owned corporation) and a private issuer.

Preparation of an SRS is generally led by the Japanese

legal counsel to the issuer and such a process is the most

time-consuming part of the offering (it generally takes at

least one month).

Under the FIEA, issuers who filed SRSs would be required

to file thereafter an annual securities report and semi-

annual report as far as the securities issued through such

SRSs are outstanding. However, issuers under such

continuous disclosure obligations are, under certain

conditions, entitled to use a more simplified form of SRS or

shelf registration statement for subsequent issues by

incorporating the continuous disclosure documents by

reference. This eligibility enables such issuers to issue

bonds and/or notes on a more flexible basis with a

simplified documentation process.

In addition to the SRS, conditions of bonds, subscription

agreement, fiscal agency agreement and other various

documents need to be prepared for the offering of Samurai

Bonds.

In practice, Samurai Bonds are cleared through the Japan

Securities Depository Centre (JASDEC). The issuer is

required to file the relevant documents to JASDEC to

participate in the book-entry system operated by JASDEC.

Practical issues and recent developmentsSamurai Bonds are governed by Japanese law and the

conditions of bonds consist in a large part of boilerplate

wordings. Foreign issuers would, however, prefer to

conform to certain conditions such as the event of default

provisions with such issuers’ other debt financing terms.

The same applies to certain provisions in subscription

agreements such as representations and warranties of the

issuer. As a result, negotiation between the issuer and

underwriter(s) is frequently necessary to take a balance of

the interest of the issuer and the Samurai Bonds practice.

Recently, Samurai Bonds issued by financial institutions in

EU member countries sometimes include so-called “Bail-

in” provisions.

Secondary distribution of EuroMedium Term Notes

OverviewEuro Medium Term Notes are the notes issued under the

notes issuing programme typically named Euro Medium

Terms Notes Programme. When Euro Medium Term Notes

are offered in Japan, such offerings have been historically

treated as secondary distribution (uridashi), not as a

primary offering. This is because the Euro Medium Term

Notes issued in the overseas markets are brought to Japan

and offered to the public on the day immediately following

the issue date. This practice is the so-called “one-day

seasoning” practice. Wide varieties of notes are offered in

the secondary distribution in Japan from simple straight

notes to complicated structured notes. The types and

amounts of the notes to be offered are determined

considering the issuer’s needs and the types of target

investors.

Offering processSimilar to the offering of Samurai Bonds, issuers need to

file SRSs in Japan to conduct the secondary distribution of

Euro Medium Term Notes. Securities information as part of

an SRS is prepared based on the terms and conditions in

the base prospectus for the programme. The burden of

preparing the company information part is the same as for

the Samurai Bonds and it is a time-consuming process.

Simplified form of SRSs and shelf registration statements

also provide the issuers with great flexibility. In case of

frequent issuers, it is not surprising that they conduct

secondary distributions of different notes several times a

week.

Euro Medium Term Notes are generally governed by the

laws other than Japanese law in accordance with the

respective programmes. The notes are often cleared

through Euroclear and/or Clearstream. In other words, in

the case of secondary distribution of Euro Medium Term

38

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40

Notes, issuers can use the existing platform under the

programme. Accordingly, no extensive negotiation is

generally necessary in relation to the terms of the notes

and no subscription agreement is executed between the

issuers and Japanese securities firms.

Practical issues and recent developmentsForeign issuers who conduct secondary distribution of Euro

Medium Term Notes in Japan prepare offering documents

(i.e. an SRS, prospectus) and continuous disclosure

documents (i.e. annual securities report, semi-annual

report) in the Japanese language. Although FIEA permits

English disclosure under certain conditions, no secondary

distributions are conducted using English disclosure

documents. This is because the target investors for

secondary distribution of Euro Medium Terms Notes are

generally retail investors who are not good at English.

Securities firms that offer the notes do not generally use

English documents for fear of lack of sufficient explanation

to potential investors. With respect to the English

disclosure system under the FIEA, further development will

be necessary to balance the burden of disclosure in the

Japanese language and the protection of investors.

Private placement through TokyoPro-Bond Market

OverviewTokyo Pro-Bond Market is a bond-focused market for

professional investors established in accordance with the

amendment of the FIEA in 2008 introducing a “professional

market system”. The main purpose of the Tokyo Pro-Bond

Market is to give issuers, both in Japan and overseas, more

convenience in issuing bonds. Tokyo Pro-Bond Market

permits listings of corporate straight bonds, structured

bonds, bonds of investment corporations, Japanese local

government bonds, foreign government bonds and other

securities similar to bonds. Since the establishment of the

Tokyo Pro-Bond Market, several foreign issuers have

offered bonds using this system.

Offering processNo filing of an SRS is necessary to offer bonds through

Tokyo Pro-Bond Market because such an offering is

categorised as a private placement, not as a public

offering, under the FIEA. Instead, issuers must file with

Tokyo Pro-Bond Market a simple listing application form

and a document – so-called “Specified Securities

Information” – for each issue. In addition, issuers can also

use the “programme listing” method by filing a document –

so-called “Programme Information”. Under the programme

listing method, issuers offer bonds by filing more

simplified form of Specified Securities Information as a

draw down under the Programme Information. It is worth

noting that the Specified Securities Information and the

Programme Information can be filed in English. This feature

provides the foreign issuers with more flexibility.

Offerings through Tokyo Pro-Bond Market by foreign

issuers are used in two different ways; Samurai Bonds-type

and Euro Medium Term Notes-type. In the case of Samurai

Bonds-type, issuers first file a Programme Information with

common forms of terms and conditions of Japanese-yen

denominated bonds. After the pricing, they file a Specified

Securities Information with pricing information. In the case

of Euro Medium Term Notes-type, issuers first file a

Programme Information basically consisting of information

from its base prospectus for its debt issuing programme.

After the pricing, they file a pricing supplement or final

terms, as the case may be, as a Specified Securities

Information. As a result, foreign issuers can achieve similar

debt financing as described above through Tokyo Pro-Bond

Market with English disclosure documents.

For the bond offering through Tokyo Pro-Bond Market to be

categorised as private placement, there are some

restrictions in the offering procedure. First, the investors

are limited to “specified investors, etc.”, which is defined

under the FIEA to include so-called “specified investors”

and non-Japanese residents. “Specified investors” is in

turn defined to include qualified institutional investors, as

well as the Japanese government, the Bank of Japan,

Japanese securities exchange listed companies, foreign

legal entities and high-net-worth individuals. Second, there

are transfer restriction requirements. In relation to

solicitations to specified investors, the FIEA requires that

two different transfer restriction agreements be executed,

37-41_DCM_2016.qxd 9/10/15 09:58 Page 40


one between the issuer and investors, and another

between the underwriter and the investors. In addition to

these two requirements, other requirements are

applicable.

Once the issuer offered bonds through Tokyo Pro-Bond

Market, it becomes subject to an annual disclosure

requirement. Issuers may satisfy this requirement by

disclosing documents publicly disclosed overseas such as

English-language annual reports.

Practical issues and recent developmentsA numbers of precedents of actual bonds issued through

Tokyo Pro-Bonds Market are still small compared to active

Samurai Bonds offerings and secondary distributions of

Euro Medium Term Notes in Japan. Due to a lack of

sufficient precedents, fixed practice of offering including,

but not limited to, how to execute two different transfer

restriction agreements described above, has not yet been

established.

Efforts are continuing to make Tokyo Pro-Bond Market

more attractive. For example, amendments to regulations

under FIEA has recently been proposed to improve, among

others, the executing method of transfer restriction

agreements. Further efforts and growing recognition will be

the key to attract foreign issuers to Tokyo Pro-Bond Market

which has potential advantage for them in terms of cost,

procedural simplicity and limitations on required

disclosure.

Conclusion

As described above, debt capital markets in Japan is

offering various ways of raising funds for foreign issuers

including established ways with a long history and newly-

introduced emerging platforms. As the economic and

regulatory environment is always changing, the latest

circumstances should be carefully checked when

comparing advantages and disadvantages of each offering

method.

41Contact us:


Akasaka K-Tower, 2-7, Motoakasaka 1-chome

Minato-ku, Tokyo 107-0051, Japan

tel: +81 3 6888 1000

web: www.amt-law.com/en/

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42

SIX Swiss Exchange – efficient capitalraising on an international marketby Marco Estermann and Valeria Ceccarelli, SIX Swiss Exchange

SIX Swiss Exchange is an internationally known centre for

listing and trading bonds. The bond market of SIX Swiss

Exchange is truly international: about half of the

approximately 1,800 listed bonds have been issued by

foreign issuers from around 50 jurisdictions from all five

continents.

In 2014 the total issue volume of new listed bonds

exceeded the amount of US$90bn. The increased

recognition of our fixed income market is also evidenced

by the fact that between 2013 and mid-2015 over 50 first-

time issuers listed their bonds on SIX Swiss Exchange,

including domestic issuers and well-known international

names. Recent first-time international corporate issuers

with sizeable transactions include Apple, which debuted in

the Swiss franc market in early 2015 with a dual-tranche

deal for a total amount of CHF1.25bn, and BAT

International Finance with a triple-tranche deal for a total

amount of CHF1bn in September 2014.

Issuers of bonds listed on SIX Swiss Exchange include

sovereigns, supranational organisations, corporates and

financial institutions. SIX Swiss Exchange’s bond segment

comprises a wide range of instruments, including straight

bonds, floating-rate notes, convertibles, exchangeables,

contingent convertibles, asset-backed securities and loan

SIX Swiss Exchange bond market is widely known as the reference marketfor the listing and trading of CHF-denominated bonds, but more recentlyhas also seen an increased number of Swiss and international issuerslisting their bonds in other major currencies (US$, €, £). This is mainlydue to the fact that SIX Swiss Exchange provides both domestic andinternational issuers with an efficient and straightforward listingprocess for the Swiss franc as well as non-CHF-denominated bonds whichallows them to access large pools of investors.

Marco Estermann

Head Issuer Relations

tel: +41 58 399 2406


Valeria Ceccarelli

Head Origination, Issuer Relations

tel: +41 58 399 2180


Marco Estermann Valeria Ceccarelli

42-47_DCM_2016.qxd 9/10/15 10:07 Page 42


participation notes. Debt instruments can be listed in CHF

and in all major world currencies. In addition, there are

over 3,000 international bonds admitted to trading on SIX

Swiss Exchange, denominated in 20 different currencies.

International bond market for CHFbonds

SIX Swiss Exchange is the reference market for CHF-

denominated bonds. The Swiss bond market is in the top

10 corporate bond markets by currency globally and it has

been an important market for both foreign and domestic

issuers and investors. The outstanding amount of the CHF

bond market at SIX Swiss Exchange is about CHF555bn as

of June 2015, with approximately 59% of the volume issued

by domestic and 41% by foreign issuers. On the domestic

side, Swiss government bonds and Pfandbriefe represent

the largest part of the market with a combined share of

approximately 54% of the domestic segment.

In the foreign segment, financial institutions, including

banks, insurance companies and agencies, represent the

largest group (with approximately 60% of the outstanding

amount of the foreign segment), followed by corporates.

In terms of the total number of outstanding bonds, the

split between domestic and foreign is approximately 50-50.

Geographically, foreign issuers are from all five continents:

most of the issuers are domiciled in Europe but the

strongest growth has been experienced by issues from

emerging markets. Non-domestic issuers mainly access the

Swiss franc bond market for currency diversification,

access to a new investor base and cost effectiveness.

SIX Swiss Exchange offers a broad range of bond indices

for the CHF capital market. The Swiss Bond Index SBI is the

benchmark for the CHF capital market and tracks the price

movements of CHF bonds listed on SIX Swiss Exchange.

The SBI Family consists of over 1,000 indices and sub-

indices which are marketed actively. These indices are also

the basis for a large number of bond ETFs which

additionally support the visibility and tradability of the

bonds listed on SIX Swiss Exchange.

Interest in other listing currenciesincreases

While SIX Swiss Exchange is widely known as the reference

market for CHF-denominated bonds, we have seen an

increased number of Swiss and international issuers listing

their bonds in other major currencies (including US$, €, £) on

our platform. In June 2014, a bond denominated in Chinese

renminbi was also listed at our venue for the first time.

SIX Swiss Exchange is also a platform for listing and

trading of non-CHF-denominated (so-called international)

bonds. Bonds can be listed in the major world currencies.

Despite being still of a relatively small size, with new

listing volumes in 2014 for an equivalent amount in excess

of US$17bn this segment experienced a 38% increase

versus the listing volume for 2013. The largest component

of the current outstanding volume of international bonds

listed at our venue is represented by contingent

convertible (CoCo) bonds issued both by domestic and

other European banks, making SIX Swiss Exchange one of

the leading European platforms for listing CoCo bonds. In

terms of currency, the majority of the bonds in the

international segment are denominated in US dollars

followed by euros and British pounds.

Access to large investor pools

Issuers of bonds listed on SIX Swiss Exchange benefit from

a high level of interest among investors in the Swiss

financial market as well as a capital-rich investor base and

the exchange’s flawless reputation.

Switzerland has been a leading financial centre in the heart

of Europe for decades thanks to its innovation,

competitiveness and political and economic stability.

Switzerland is one of the largest global financial centres

measured by assets under management. As a financial

centre, Switzerland manages assets totalling around

CHF5.5 trillion, with CHF1.2 trillion allocated to bonds.

Switzerland is the world leader in cross-border wealth

management with a global market share of 25% in 2014.

Added to this, Switzerland is home to more than 600 banks

and insurance companies and more than 2,300 pension

funds that have substantial assets to be invested.

43

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44

The Swiss financial centre and SIX Swiss Exchange have a

long-established reputation for providing state-of-the-art

services to participants in financial markets across the

globe. SIX Swiss Exchange’s listing rules, services and

trading activities, in combination with SIX’s post-trading

activities, financial information and payment systems, are

aligned with customer needs as well as market and

regulatory developments.

Listing on SIX Swiss Exchange therefore provides issuers

with efficient access to a wide range of experienced and

highly capitalised Swiss and international investors.

Straightforward listing process andrapid time to market

The regulatory requirements of SIX Swiss Exchange meet

the most rigorous international standards, but are also

market-oriented, allowing issuers to raise capital simply

and efficiently.

Exhibit 1 summarises the requirements for listing straight

bonds on SIX Swiss Exchange and Exhibit 2 the post-listing

requirements. Provisional trading in a bond intended for

listing can begin as early as three trading days after receipt

of the electronic application. The listing procedure will

generally take up to 20 trading days depending upon the

complexity of the transaction and the completeness of the

documentation (see Exhibit 3).

Feedback from existing issuers has confirmed that the

efficiency of the listing process, easy access and rapid time

to market as well as the solid recognition of the exchange

have been the key drivers in the choice of listing venue.

A liquid secondary market

SIX Swiss Exchange offers liquid and transparent

secondary market trading as well. Fully automated bond

trading on SIX Swiss Exchange was introduced in 1996. On

July 31, 1998, SIX Swiss Exchange added international non-

Issuer

Track record Three years

Financial record Last three years’ annual financial statements (in accordance with the financial reportingstandard applied)

Accounting standards IFRS, US GAAP, local GAAP under certain conditions

Equity capital CHF25m (or equivalent amount in another currency)

Guarantor All the above requirements regarding track record, financial records, as well as equitycapital, may be waived if a third party that fulfils these requirements provides a guaranteein respect of the securities

Debt securities

Applicable law OECD member stateUpon application, other foreign legal systems may be recognised, provided that they meetinternational standards in terms of investor protection and transparency regulation

Minimum capitalisation CHF20m (or an equivalent amount in another currency)

Paying agent Services related to interest and capital as well as all other corporate actions need to beprovided in Switzerland

Exemptions: exemptions from certain provisions of the listing requirements may be granted provided this is compatible with the interest ofthe public or SIX Swiss Exchange, and provided that it can be demonstrated that the relevant requirement can be satisfied by other meansin the specific circumstances.

Bond listing requirements on SIX Swiss Exchange Exhibit 1

Source: SIX Exchange Regulation

42-47_DCM_2016.qxd 9/10/15 10:07 Page 44

-

-

visit www.six-swiss-exchange.com/listing

Go straight to the topwith your listing.

Let us take you to the top.

42-47_DCM_2016.qxd 9/10/15 10:07 Page 45


46

Financial reporting Publication of the audited annual reports on the website of the issuer (within fourmonths of the balance sheet date)

Ad hoc information Disclosure of price-sensitive facts

Other reporting obligations Report of any change in the relevant information pertaining to the company and thelisted debt security, including:

– pertaining to the company Change of company nameChange of auditorsChange of accounting standard

– pertaining to the securities AmortisationsEarly repaymentIncreasesNew interest rate for floating-rate notes and/or change in interest computation methodReorganisation or restructuring of the securityChange of paying agentInvitation to and resolutions adopted by general meetings of bondholdersFor conversion rights, the exercise of such rights and any amendment to conversion terms

Bond post-listing requirements Exhibit 2

Overview of the bond listing process on SIX Swiss Exchange and indicative timetable Exhibit 3



Preparation phase 3 days 3 days

Application forpre-verificationof new issuer

Examinationof the

pre-verificationand decision

Electronicapplication for

provisionaladmission

to trading (T)

Decision aboutthe provisional

admissionto trading (T +3)

Filing of the definitive listingapplication within 2 months fromprovisional admission to trading

(listing application, listingprospectus, etc.)

Examination of the definitive listingapplication within 20 exchange days

Trading

Listing

Q Responsibility of recogni ed representatives Q Responsibility of SIX Swiss Exchange (SIX Exchange Regulation)s

Note: The recognised representative is responsible for submitting the listing application and maybe a bank, a law firm, auditing or advisory firm.

42-47_DCM_2016.qxd 9/10/15 10:07 Page 46


47

CHF bonds to its Swiss franc bond segment. Features of the

SIX Swiss Exchange platform for bonds are its firm

execution prices, a multi-dealer platform and automated

trading, clearing and settlement. On SIX Swiss Exchange,

15 market makers provide binding bid and ask prices for

approximately 4,800 bonds. Over 80% of all Swiss franc

bond tickets are traded in the order books of SIX Swiss

Exchange.

SIX Swiss Exchange is the leading privately owned exchange and one of the largest in Europe in terms of the (free

float) market capitalisation of its listed companies. It is the reference market for approximately 35,000 securities

including equities, bonds, exchange-traded funds, exchange-traded products as well as structured products and

warrants. The customer base of SIX Swiss Exchange comprises a wide variety of listed companies, issuers of bonds and

financial products and trading participants. Listed companies on SIX Swiss Exchange benefit from access to

experienced, highly capitalised and internationally active investors and a high level of liquidity. SIX Swiss Exchange

deploys state-of-the-art technology, setting global standards for securities trading in terms of speed and capacity.

Contact us:

SIX Swiss Exchange Ltd

Selnaustrasse 30, P.O. Box

CH-8021 Zurich, Switzerland

tel: +41 58 399 5454

web: www.six-swiss-exchange.com

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48

Developments in Swiss debt capital markets – 2015by Lukas Wyss, Maurus Winzap and Thomas Müller, Walder Wyss Ltd.

General overview and recentdevelopments in the Swiss debtcapital market

Low interest rates in the Swiss franc marketOn January 15, 2015, the Swiss National Bank (SNB)

publicly announced that it discontinued the minimum

exchange rate of CHF1.20 per €1. Simultaneously, the SNB

lowered interest rates on larger sight deposit account

balances to –0.75% in an attempt to avoid “inappropriate

tightening of monetary conditions”. Since January 15, 2015,

interest rates in the Swiss franc market have been at

historically low levels. In mid May 2015, the three-month

CHF LIBOR was as low as –0.80%. The Swiss Confederation

is now able to auction up to 10-year government bonds

with a negative yield. Even the Swiss Pfandbrief has been

issued at negative yields. Whilst it is possibly just a

question of time, the primary market is still reluctant to

accept negative yields on new corporate issuances.

Recently, the Swiss debt capital markets have been greatly influenced bythe Swiss National Bank’s (SNB) decision to discontinue the minimumexchange rate of CHF1.20 per €1. On the regulatory side, the contemplatedoverhaul of the Swiss regulatory framework (which includes a revision ofthe prospectus requirements) will affect markets quite significantly aswell. Finally, there are ongoing discussions around revising the Swisswithholding tax regime by abandoning the withholding at source conceptand introducing a regime that foresees deductions by paying agents. Eventhough the respective legislative process has been postponed, it can beexpected that a revision will be further advanced in the near future.

Lukas Wyss

tel: +41 58 658 56 01


Maurus Winzap

tel: +41 58 658 56 05


Thomas Müller

tel: +41 58 658 55 60


Lukas Wyss Maurus Winzap Thomas Müller

48-53_DCM_2016.qxd 9/10/15 10:21 Page 48


Market activityUnsurprisingly, the market has been largely driven by the

low interest environment created by SNB’s decision. One

could think that low interest would boost issuance

activities. However, issuers currently have to deal with

various challenges:

• generally, issuers tried to further benefit from low

interests and marketed further transactions;

• however, given that interest rates (in particular in the

Swiss franc market) have been at low levels already for

quite a while, many issuers successfully closed

transactions during the last year already and had no

imminent need for liquidity in 2015;

• as most Swiss banks now charge negative interest on

(larger) sight deposits, issuers have a tendency to

keep liquidity at low levels and to launch transactions

only when there is an immanent need to finance; also,

corporate issuers aim to refinance current transactions

as late as possible;

• M&A activity in Switzerland cooled down in the first

two quarters of 2015. The strong Swiss franc is likely to

be one of the reasons for this. Obviously, this had a

negative impact on the overall issuance activity.

Swiss financial market’s newregulatory framework in general

A significant development in the Swiss financial industry in

general and the Swiss debt capital market in particular, is

the contemplated overhaul of the Swiss regulatory

framework of financial markets.

In a general attempt to bring the Swiss regulatory

framework in line with international regulations, such as

EMIR MiFID II and the EU Prospectus Directive, it is

suggested that the Financial Market Infrastructure Act

(FinMIA), the Federal Financial Services Act (FinSA) and the

Financial Institutions Act (FinIA) replace major portions of

the existing regulations and implement new rules on

financial services.

The FinMIA has already been approved by the Swiss

parliament. As any other act approved by the Swiss

parliament, it is now subject to the optional public

referendum. Assuming that no referendum will be

requested by October 8, 2015, the FinMIA is expected to

enter into force soon thereafter. Drafts of the FinSA and the

FinIA have been presented by the Swiss Federal Council for

consultation in 2014 and, on the basis of feedback received

in the consultation process, the drafts will be adopted and

presented to the Swiss parliament likely in October 2015.

The FinSA and the FinIA shall strengthen client protection,

promote competitiveness of the Swiss financial centre and,

by creating a level playing field, competitive distortions

between providers shall be minimised.

More specifically, the FinSA will govern the relationship

between financial intermediaries and their clients with

respect to all financial products. Financial service providers

will have to seek and take into account necessary

information on the financial situation, knowledge and

experience of the client when rendering advice. Further, the

FinSA will introduce new uniformed prospectus

requirements for all securities that are publicly offered or

traded on a Swiss trading platform.

Also, there will be a new general requirement to produce a

basic information sheet for each financial product that can

be presented to retail clients. It remains to be seen

whether the Swiss law makes similar strict rules as

proposed under the Regulation on key information

documents for packaged retail and insurance based

investments products (PRIIPs). Private actions in the event

of misconduct by financial service providers shall be

improved; this includes the introduction of an ombudsman

service. The ombudsman is contemplated to act exclusively

as a mediator and will not get any decision-making powers.

The FinIA will unify the supervision of all financial service

providers that are active in the asset management

business in whatever form. Existing licensing requirements

for financial service providers and financial institutions

that are now widespread in various bodies of law will be

embedded in the FinIA, while essentially remaining

unchanged as to substance, safe for further alignments, as

appropriate. In addition, new licensing requirements will

49

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50

likely be introduced for managers of individual client

assets and managers of assets of Swiss occupational

benefits schemes. Asset managers shall be supervised by

the Swiss Financial Market Supervisory Authority FINMA

(FINMA) or be subject to supervision by self regulatory

organisation. The licensing of asset managers is still under

debate.

New prospectus requirements underSwiss law in particular

The revision of the prospectus requirements contemplated

by the FinSA will affect debt capital markets quite

significantly.

Current Swiss prospectus regime and regulationsUnder the current Swiss legal regime, the relevant rules

applicable to debt securities offerings depend on whether

the offering is private or public. Private offerings are not

regulated and, accordingly, there is no obligation to

publish or provide for a prospectus. Nevertheless,

prospectus or information memoranda are typically

prepared in private offerings on a voluntary basis, in

accordance with market standards and investor

expectations.

The prospectus requirements for public offerings are

generally set out in the Swiss Code of Obligations (CO).

Given that Switzerland is not a member of either the EU or

the EEA, the EU Prospectus Directive, the PRIIPs and other

EU/EEA capital market regulations do not apply. The

content requirements for such prospectus are rather slim

and only cover, essentially, disclosures on the issuer (and

guarantor, if relevant) relating to corporate form, capital

structure, board members, dividends distributed in the

past five years and latest annual audited accounts (not

older than nine months; otherwise, interim accounts will

have to be established).

If debt securities are to be listed on a stock exchange in

Switzerland, the respective listing requirements and rules

of the relevant stock exchange will have to be complied

with. In Switzerland, the most important stock exchange is

the SIX Swiss Exchange in Zurich (SIX). Given that the

prospectus requirements under the CO are rather slim, a

listing prospectus that complies with SIX’s regulations

most often covers the CO requirements for an offering

prospectus as well. Therefore, when issuing debt securities

to be listed on the SIX, it is standard to produce one

prospectus only which qualifies as an offering prospectus

under the rules of the CO and as a listing prospectus under

the rules of SIX.

In the framework of examining the listing application for

debt securities, SIX will examine whether the prospectus

meets the listing rules. Other than that, there are no

general filing or approval requirements under Swiss law.

In addition, it is important to note that SIX generally allows

for a provisional admission to trading of debt securities (on

the basis of an online short form application for provisional

trading). The final listing application only needs to be filed

with SIX within two months after the first trading day.

Hence, a transaction can be closed and admitted to

provisional trading, without any authorities or any stock

exchange having formally approved the prospectus. This

makes issuances and listings of debt securities extremely

efficient in Switzerland.

Regime under the new Federal FinancialServices Act (FinSA)The regime suggested by the FinSA will differ significantly

from the current Swiss law regime reflected in the CO and,

accordingly, will influence the Swiss debt capital market.

Requirement to issue prospectus

Articles 37 et seq. of the consultation draft of the FinSA

deal with the prospectus requirements for securities,

including debt securities. The new rules state that “any

person who offers securities for sale or subscription in a

public offer in Switzerland or any person who seeks the

admission of securities for trading in a trading venue as

defined in the FinMIA must first publish a prospectus.”

The FinSA further provides for exemptions from the

prospectus requirements, which are very similar to the

exemptions provided by the EU Prospectus Directive (i.e.

(i) addressed solely to investors classified as professional

clients; (ii) addressed to less than 150 investors classified

48-53_DCM_2016.qxd 9/10/15 10:21 Page 50

Walder Wyss Ltd. Zurich, Basel, Berne, Lugano Phone + 41 58 658 58 58 www.walderwyss.com

Your business is our expertise.We see your business the wayyou see it.

Walder Wyss is one of the leading law firms in Switzerland. Our clients include international

corporations, small and medium-sized businesses, public companies and family-owned compan-

ies as well as public-law entities and individuals.

Around 200 people work at Walder Wyss. The team of 130 legal experts – all of whom are highly

qualified multilingual professionals with international experience – is augmented by around 70

employees working in support functions.

Walder Wyss began early to specialise in selected commercial sectors and we are now known

for our profound knowledge of our clients’ specific businesses. Walder Wyss is active in national

and international professional organisations and maintains established business relationships

with partner law firms in other countries.

Walder Wyss was established in 1972 in Zurich and has grown steadily since inception. Walder

Wyss has also o�ces in Berne since 2009, in Lugano since 2013 and in Basel since 2014.

48-53_DCM_2016.qxd 9/10/15 10:21 Page 51


52

as retail clients; (iii) addressed to investors acquiring

securities at a value of at least CHF100,000; (iv) minimum

denomination per unit of CHF100,000; or (v) not to exceed

an overall value of CHF100,000 over a 12-month period).

There are further exemptions that apply depending on the

type of securities to be issued.

Requirements as to content of prospectus

Contrary to the current rules, the draft FinSA imposes quite

extensive requirements as to the content of a prospectus.

These requirements are generally in line with standard

market practice and international regulations.

Relaxed standards

The draft FinSA suggests that the Swiss Federal Council

may, in the form of a federal ordinance, introduce relaxed

standards on the prospectus requirements for small- and

mid-size enterprises (i.e. enterprises not exceeding any

two or all of the following: (i) balance sheet of

CHF20,000,000; (ii) turnover of CHF40,000,000 per year; or

(iii) 250 employees – full-time equivalent).

Review of prospectus by review authority

The new rules on the requirements to issue a prospectus,

as well as the requirements as to its content are not

fundamentally different from SIX’s listing rules. Whilst the

FinSA will provide for a more explicit and possibly stricter

legal framework, these elements do not provide for

fundamental changes.

However, under the FinSA, the issuance of a prospectus is

subject to prior examination by a reviewing authority.

In the review process, completeness, coherence and

comprehensibility of the prospectus are checked against

the requirements of the FinSA. The reviewing authority

shall render its decision within 10 business days or, in case

of first time issuers, 20 business days.

Once the FinSA will be implemented, FINMA will appoint

the reviewing authority. The reviewing authority further

needs to meet certain requirements, such as

independence, due organisation, reputation, infrastructure

and knowledge. Given the lack of infrastructure and

personnel, it is expected that a private organisation or

organisations will be appointed (such as SIX).

Key information document

Under current regulations, it is a requirement that a key

information document be produced in relation to certain

collective investment schemes. The FinSA will introduce a

general obligation to produce and publish a key

information document for any financial instrument offered

to retail clients. This will generally be the case for debt

securities.

OutlookIt is not entirely clear yet, when the FinSA and the FinIA will

be enacted. An implementation prior to 2017 is not

expected. Also, whilst it is expected that the FinSA and the

FinIA will be enacted generally in the current draft form, it

cannot be excluded that certain elements will still be

adapted and some requirements will be dropped. However,

given the international political pressure to bring the Swiss

regulatory framework in line with the EU regulatory

framework, it can be expected that the basic framework as

per the current consultation drafts will remain.

Taxes

Interest payments by Swiss issuers and borrowers under

collective fundraising transactions (such as bonds) are

subject to Swiss withholding tax at a rate of 35%. Whilst

Swiss investors may claim back the 35% relatively easily –

but with a delay as to timing, the reimbursement process

for foreign investors is more burdensome. Also, depending

on the jurisdiction of the investors and further depending

on the legal structure of the investors, Swiss withholding

tax may be claimed back only in part, if at all. This imposes

a limitation on Swiss issuers to access the international

debt capital markets. Exemptions are only available

(temporarily) for certain types of debt qualifying as

regulatory capital (such as CoCos issued by systemic

relevant banks (“too big to fail” banks) as well as certain

write-off and bail-in bonds).

In an attempt to discourage bond issuances by Swiss

groups abroad and to strengthen the Swiss market,

Switzerland is about to consider fundamental changes to

its withholding tax system. On August 24, 2011, the Swiss

48-53_DCM_2016.qxd 9/10/15 10:21 Page 52


53

Federal Council proposed new legislation under which the

current deduction of Swiss withholding tax of 35% by the

issuer of bonds on interest payments at source would have

been substituted for by a respective deduction by Swiss

paying agents (subject, in principle, to an exception for

foreign investors). It was initially expected that the new

regime would enter into force in the course of 2015 or

2016. However, in view of the negative outcome of the

consultation on the draft legislation in the course of 2014

and 2015, the Swiss Federal Council decided, on June 24,

2015, to postpone a complete overhaul of the Swiss

withholding tax regime, as originally planned. It now

remains to be seen when and, if so, under which form, the

withholding tax reform will be launched again. The paying

agent principle should be discussed again before the

planned exemptions for CoCos, write-off and bail-in bonds

expire.

Further, bonds, like any other taxable securities, are

subject to a Swiss transfer stamp duty at 0.15% for

domestic bonds and 0.3% for foreign bonds if a transfer of

title occurs for consideration and a Swiss securities dealer

is involved as a party or as an intermediary to the

transaction.

For direct tax purposes of Swiss resident individual

bondholders, most of the returns of bonds are subject to

Swiss income tax. Upon sale and redemption of structured

products, the theoretical bond component is subject to pro

rata Swiss income taxation. Until now, accrued interest is

tax-free income upon sale of a bond; however, this could

change if the revised draft legislation project from the

Swiss Federal Council is enacted.

Contact us:

Walder Wyss Ltd.

Seefeldstrasse 123, P.O. Box 8034 Zurich, Switzerland

tel: +41 58 658 58 58

fax: +41 58 658 59 59

web: www.walderwyss.com

48-53_DCM_2016.qxd 9/10/15 10:21 Page 53


54

Capital markets 2016:What’s up in Germany?by Timo Patrick Bernau, Agnes Bosse, Hendrik Riedel, Peter Scherer and Sebastian Wintzer, GSK Stockmann + Kollegen

Another important source of change is the regulatory

tsunami in the aftermath of the global financial market

crisis: New and restrictive regulatory capital rules

incentivise banks to increasingly withdraw from (regulatory

capital-expensive) long-term financings, such as real estate,

project and infrastructure lending, and thus to make more

use of capital markets instruments. And, generally, all

financial markets suffer from the ever increasing amount of

ever more complicated rules and regulations.

Finally, both the technological development (by the

increasing importance of crowdfunding and high frequency

(algorithm) trading, etc.) and, particularly in Germany, the

focusing of investors on eco-friendly products (e.g. green

bonds, specialised funds, etc.) continue to change the

German capital markets at least as much as regulatory

developments do.

ECM

Equity in GermanyThe German equity capital markets (ECM) boom of recent

years is very much driven by institutional investors. The

Germans were never really a nation of stockholders but

since the New Market’s crash in 2003 it never again worked

to establish shares as an important and substantial part of

most peoples’ investment mix. However, the German ECM

market is, in addition to the traditional bank financing, an

established element for the financing of Germany’s

industry. Initial public offerings (IPOs) and subsequent

public offerings (SPOs) are largely coming from SMEs, at

least by numbers, but high volumes in ECM transactions

are still issued by the traditional large German industrial

companies.

IPOsGerman IPO issuers live in difficult times. Whereas in the

days of the New Market (Neuer Markt) there were up to 165

IPO candidates per year, there were only seven of them in

2012. By mid-2015 14 issues have already achieved their

listing, even though issue size and stock price often were

lower than hoped for. A good example of a successful

recent IPO is Sixt Leasing AG, the shares of which were

fully placed at the higher end of the price range. The

Like in most of Europe and unlike the US situation, German corporatefinance is largely based on bank lending and only to a smaller degree oncapital markets. However, the EU Commission has now plans to change this– at least gradually – by introducing a so-called Capital Markets Union(CMU): A variegated bunch of industry projects and new legislationsupporting the equity and debt capital markets, partly long-existingreform plans plus some new ideas.

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predominance of institutional investors in equity markets

and their volatility have led to offering structures in

Germany called “IPO light”, where most of the issuance

volume is already placed with institutional investors prior

to the public offer. Successful examples for recent “IPOs

light” are the automotive parts supplier HELLA in late 2014

and the asset manager publity AG in April 2015.

Capital increasesThe largest share of German equity capital market

transactions consists of capital increases. In 2014, 19 IPOs

were standing against 101 capital increase offerings at

Deutsche Börse. While the volume of the IPOs in 2014 was

around €3.6bn, the total volume of capital increases in

2014 amounted to nearly €18bn. Accordingly, the market is

dominated by many small transactions and very few larger

transactions. In 2014, there were only three capital

increases with volumes between €205m to €450m.

Small capsUntil today, the opening of the equity capital markets to

small caps remains a positive effect of Germany’s short-

lived retail equity capital market boom before 2003. Small

and medium caps actually reflect the typical German

business environment which is characterised by SME

enterprises (Mittelstand). The German stock exchanges

have established segments for such SME caps aiming at

institutional investors, while the regulated markets shall

serve both institutional and private investors.

Hybrid instrumentsRecently, the high volatility of the equity capital markets

has also led to an increased number of convertible bonds

in Germany. This segment is dominated by larger bond

offerings aimed at institutional investors with minimum

subscription amounts of €100,000. But increasingly there

are also convertible bonds offered by SMEs, aimed at

institutional investors as well as retail investors in

denominations of €1,000.

CoCosA relatively new and special form of hybrid instruments are

contingent convertibles. They are long-term subordinated

bonds (with fixed coupon) which, if the regulatory capital of

its issuer (bank) falls below a certain level, the losses are

absorbed by either being written off or by being exchanged

into equity capital. The Association of (Private) Banks in

Germany has issued standardised terms and conditions for

CoCos with a writing-down and writing-up mechanism (type

A) and with contingent mandatory conversion into core

capital (type B). On their basis, the German Ministry of

Finance on April 10, 2014 has accepted the tax deductibility

of the interest payments under such instruments. This has

significantly increased interest by institutional investors.

Small investors had to some degree always been attracted

by them, but on October 15, 2014 Germany’s Supervisory

Authority BaFin has issued a warning that, due to their high

complexity and their purpose, CoCos were “largely

unsuitable for retail investors”.

DCM

Corporate bondsCorporate bonds are issued by companies to finance their

business. Their maturity might be anything between short

(e.g. in the form of commercial papers) and long term.

Generally, they are bearer instruments but some are also

registered instruments (Namensanleihen). Most corporate

bonds are issued in non-collateralised form. Initial coupon

and yield are thus very much determined by the issuer’s

credit rating and changes both on the company level as

well as in the macro-economic environment can easily

influence the bonds’ price. Due to the low interest rates

environment, the German corporate bonds market has

been quite active in 2014 and 2015. In the first two

quarters of 2015, the aggregate volume of bond issues

already reached €380bn. However, the average interest

coupon fell from 3.07% to 2.93%.

Mid-market bondsThe vast majority of German corporates belong to the

“Mittelstand”, small and medium-sized businesses (SMEs).

Such SMEs had traditionally relied on bank lending rather

than on issuing corporate bonds. In order to provide these

55

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companies with access to the bond markets, specialised

segments for mid-market bonds (Mittelstandsanleihen or

M-Bonds) had been created on the stock exchanges of

Stuttgart, Munich, Frankfurt, Hanover, Dusseldorf and

Hamburg. Until the end of 2014, many of the issuers

performed very well, whereas 21 bonds defaulted and, as a

consequence, most of the specialised segments for M-

Bonds have been closed for new issuances. The only

remaining specialised segments for M-Bonds are now

provided by the Frankfurt Stock Exchange (Entry Standard

and Prime Standard). In the first two quarters of 2015, four

bonds with an aggregate volume of €470m have been

issued in these two segments. Within the next few years, a

large number of M-Bonds will have to be refinanced either

by issuance of new publicly-listed bonds or by the

amendment of existing bonds with the approval of (a

majority of ) the bondholders or by private placements.

Real estate bondsIn the real estate industry, listed as well as non-listed

bonds secured by real estate have become an attractive

and flexible financing instrument. They can be structured

as corporate bonds, i.e. their proceeds will be used for

general corporate purposes, or as project bonds related to

a specific real estate development project (with proceeds

controlled by an escrow agent and a security agent holding

the collateral for the benefit of the bondholders). In 2014,

seven real estate bonds with an aggregate volume of

€490m have been listed, all but one in the Entry or Prime

Standard at the Frankfurt Stock Exchange, among them DIC

Asset AG and Adler Real Estate AG. An example of a listed

secured project bond is Cloud No. 7 issued in June 2013.

Project and infrastructure bondsThe European Commission estimates that in the EU until

2020 up to €2,000bn of investments in infrastructure will

be required. In the past, infrastructure bonds insured by

monoline insurers played an important role in

infrastructure financing. When the rating of such insurance

companies dropped during the global financial markets

crisis, the product became less attractive. In order to

facilitate investments in infrastructure bonds, the EU

Commission and the European Investment Bank have

launched the Project Bond Initiative, which will provide

credit enhancement (PBCE) in the form of subordinated

debt. An example of a bond financing of an infrastructure

project supported by PBCE is the extension of the German

Highway A7 in August 2014.

Dr Timo Patrick Bernau, Local Partner

tel: +49 89 28 81 74 – 662


Agnes Bosse, Local Partner

tel: +49 69 71 00 03 – 103


Hendrik Riedel, Partner

tel: +49 89 28 81 74 – 73


Peter Scherer, Partner

tel: +49 69 71 00 03 – 124


Sebastian Wintzer, Local Partner

tel: +49 89 28 81 74 – 55


Dr Timo Patrick Agnes Bosse Hendrik RiedelBernau

Peter Scherer Sebastian Wintzer

54-61_DCM_2016.qxd 9/10/15 10:26 Page 56


Green bondsThe proceeds of so-called “green bonds” must be used for

projects that benefit the environment or society, such as

renewable energy, energy efficiency and clean water.

Transparency and clear rules regarding the application of

issuance proceeds will be a key element for the future

success of this product. Therefore, the Green Bond

Principles set out requirements for designating, disclosing,

managing and reporting on capital raised from green

bonds. A total of 35 issuers raised a total of US$36.6bn in

2014, up from just US$11bn in 2013. The first German green

bond was issued by KfW in July 2014 with a volume of

€1.5bn (maturity of five years and annual coupon of

0.375%). The second quarter of 2015 started with the first

issuance of a green covered bond (grüner Pfandbrief) by

Berlin Hyp AG, with a volume of €500m.

Pfandbriefe

A Pfandbrief is a German statutory covered bond backed

either by a pool of local government loans or by

mortgages, ship or aircraft mortgages. As a result of

statutory stipulations, the Pfandbrief is an extremely

successful product offering a high level of security,

especially with the highest possible degree of insolvency

remoteness, a verifiable valuation of the relevant cover

assets, robust revenues and liquid trading markets with

little market volatility. There has never been a Pfandbrief

crunch, neither in the two world wars nor in the recent

financial crises.

Schuldscheine

Legally speaking, Schuldscheine are certificates of

indebtedness evidencing a loan, i.e. receipts over loans,

but not securities. However, as Schuldscheine are more

fungible than loan agreements, they are for many practical

purposes considered to be quasi-securities and capital

markets instruments. Schuldscheine cannot be cleared and

are usually not listed and, if so, there is no legal

requirement to prepare a prospectus in connection with

their issue. The majority of Schuldschein issuers are not

rated. Moreover, international and German accounting

rules do not require a mark-to-market accounting of

Schuldschein loans. Their documentation is typically short

and simple, even for German standards. During the last 20

years, German Schuldscheine have become increasingly

popular. The borrowers are often medium-sized German

businesses. Investors are typically institutional investors

such as (for regulatory reasons) German insurance

companies, pensions funds and, of course, banks.

Zertifikate

Another peculiarity of the German markets is the high

importance of retail structured bonds (i.e. retail market

debentures with embedded derivatives), the so-called

“Zertifikate”. There is a great variety of such products and,

despite a modest decrease in volumes since 2011, they are

quite popular investments. One of the reasons for this

ongoing popularity is probably the fact that the Zertifikate

industry has given itself a so-called “Fairness Codex”,

which even BaFin praises as a successful form of self-

regulation.

Securitisation

ABS marketGermany started only in the late 1990s to have active

securitisation markets, mainly relating to bank, auto and

“Mittelstands” loans, leasing and trade receivables, either

with asset-backed securitisation (ABS) or synthetic

transactions (namely the KfW-sponsored Promise and

Provide deals). The start of the global financial markets

crisis in 2007 led to a sharp decrease of the public

placements of securitisations (despite the high quality of

the respective German products). On a lower level, since

2012 markets are heading back to normality – mostly with

securitisations of auto loan receivables.

ECBSince 2007/08, banks tend to retain issued ABS in order to

use their (large) senior tranches as collateral for

Eurosystem credit operations. In Europe this is still a very

important part of the securitisation market. The rules on

Eurosystem eligibility of ABS are contained in the ECB’s

General Documentation. Moreover, the ECB decided in

2013/14 to include certain qualified ABS in its Quantitative

Easing (QE) programme; this has led to a narrowing of the

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ABS spreads in most areas – which was good for issuers

but bad from an investor’s point of view.

High quality ABSDuring the last few years, legislators and regulators have

realised that European/German securitisation transactions

are of a much higher quality than many such US

transactions and that high quality securitisation can lead

to a better functioning of capital markets in Europe and

Germany. Therefore, in order to promote the quality of

securitisations, a number of regulatory capital rules (e.g.

risk retention rule, re-securitisation prohibition, higher risk

weightings, etc.) have been or will be introduced as well as

loan level data requirements, quality signs (e.g. by TSI and

PCS) and ECB rules. Papers by the Basel Committee, the

European Banking Authority (EBA), the Bank of England in

cooperation with the ECB and the European Commission

propose rules for high quality securitisations in order to

support the desired revitalisation of the markets, including

the EU Commission’s Capital Markets Union plans.

LuxembourgFor German originators, Luxembourg has become the most

important place for securitising and for listing ABS. Due to

its specific securitisation legislation and the business-

oriented practice of its supervisory and tax authorities, the

Grand Duchy has emerged as Europe’s predominant centre

of securitisation. And this does not only relate to the

securitisation of large loan portfolios of banks but

increasingly also to smaller and mid-sized repackaging

transactions using Luxembourg securitisation vehicles in

order, for example due to regulatory investment

restrictions, to transform certain assets into securities.

Investors

German marketsThe positive development of equity capital markets in

Germany is largely driven by institutional investors,

including funds and insurance companies. In the debt

capital markets, both private and institutional investors are

rather active, especially in those segments of the markets

which are regarded as particularly safe investments, such

as German (and other) sovereign bonds, German statutory

covered bonds (Pfandbriefe) and funds. However, capital

markets instruments with higher yield and risk are quite

popular, for example German Zertifikate. Institutional

investors are increasingly interested in long-term products,

such as project and/or infrastructure bonds.

FundsOne of the most important groups of institutional investors

are German, EU and non-EU funds, the German activities of

all of which are regulated in the Capital Investment Code

(KAGB) implementing both the European AIFMD and UCITS

directives. Soon the KAGB will be amended by a UCITS 5

Implementation Act. In addition, there is quite a number of

delegated and implementing acts and regulations by the

EU Commission as well as ESMA guidelines, German

regulations and BaFin communications.

Insurance companiesThe other major group of German institutional investors

are insurance companies and pension funds, both subject

to the rules of the German Insurance Supervisory Act

(VAG). In addition, there are regulations on the investment

of restricted assets of insurance companies (AnlV) and of

pension funds which were amended in March 2015 as well

as a BaFin circular on capital investments of April 21, 2011

which will soon be amended. In regard to the (larger)

insurance companies the rules, including investment rules,

will be completely changed on January 1, 2016 by the

amendment of the VAG implementing the EU Solvency 2

Directive. This is likely to further enhance debt rather than

equity investments by insurance companies, including

long-term investments (e.g. in the infrastructure sector).

Infrastructure

ExchangesThere are eight stock exchanges based in Germany:

(i) Frankfurt Securities Exchange (FWB), operated by

Deutsche Börse AG, which is one of the largest securities

exchanges in the world with a Regulated Market (Prime

Standard and General Standard) and an Open Market

(Freiverkehr) plus a so-called Entry Standard and, in

54-61_DCM_2016.qxd 9/10/15 10:26 Page 58

Success in banking and finance requires profound know-how. Protect yourselfagainst any unpleasant surprises withthe outstanding legal expertise andcomprehensive experience of the lea-ding market experts. With our advice,you will neverlose track of what isreally important.

www.gsk.de

The future of financial regulation?

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GSK. THE DIFFERENCE.

BERLIN FRANKFURT/M. HAMBURG HEIDELBERG MUNICH BRUSSELS SINGAPOREwww.broadlawgroup.com

54-61_DCM_2016.qxd 9/10/15 10:26 Page 59


60

particular, its electronic trading platform Xetra;

(ii) Stuttgart Exchange with its various trading segments

such as EUWAX (for securities with embedded derivatives,

including Zertifikate), Bond-X (for bonds) and 4-X (for

foreign securities); (iii) the regional exchanges in Hamburg;

and (iv) Hanover, both operated by BÖAG Börsen AG and

focusing on ETF; (v) other regional exchanges including

Berlin Exchange; (vi) Dusseldorf Exchange; and

(vii) Munich Exchange which its Xetra-like electronic

trading system MAX-ONE (for shares, bonds and funds);

and (viii) Germany’s youngest exchange called Tradegate

with a Xetra-like trading system and long trading hours

(8am to 10pm) for internationally active investors.

Generally, exchange trading is highly regulated, while OTC

trading is less regulated.

PlatformsElectronic trading is offered not only by exchanges but also

by other market participants qualifying as multilateral

trading facilities (MTF; mostly the London-based Chi-X,

SmartPool and Turquoise), systemic internalisers (SI; such

as Goldman Sachs, Knight Capital, Citigroup, SocGen, UBS,

CS, etc.) or organised trading facilities (OTF), using all

kinds of legal structures. Currently, unregulated so-called

“dark pools” operated by large banks are in the spotlight

of legislators and regulators, and are heavily criticised in

public as a major disturbance to transparency in the

markets.

CrowdfundingOne of the reasons for the significant growth of platform

trading is the technological development and the resulting

emergence of ever more internet-based crowdfunding

platforms and Fintech companies. Increasingly, they are the

subject of German legislation/regulation (for example

under the new Small Investors Protection Act, KAnlSchG),

although the promotion of this new industry is also part of

the European Commission’s CMU plans.

T2S projectThe ECB’s Target-to-Securities (T2S) project will create an

integrated Eurosystem settlement service for a harmonised

and central settlement of securities trades with central bank

money (Euros) on an infrastructure platform in the “delivery

versus payment” (dvp) modus. The ECB is starting the

operation of T2S in waves with Germany, and thus

Clearstream Banking Frankfurt, joining in September 2016.

Regulation

Securities lawGerman securities come in different forms (physical notes,

global notes (immobilised) and dematerialised securities)

and types (shares, bonds, funds/ETF, etc.). The form of

securities determines the applicable rules on their transfer

and encumbrance: Physical notes are subject to the law in

rem provisions of the Civil Code (BGB), whereas

immobilised and dematerialised securities are additionally

governed by the provisions of the Safe Custody Act (DepG),

and dematerialised securities are also subject to some

special reference norms. Looking at the content of German

law securities, shares are governed by the charter of a

stock corporation and the rules of the Stock Corporation

Act (AktG). Bonds are governed by their contractual terms

and conditions, some Civil Code provisions (e.g. section

793 of the BGB on bearer debentures) and the Debenture

Act (SchVG); in addition, Pfandbriefe are subject to the

Covered Bonds Act (PfandBG). Fund units/ETF are governed

by their general contractual and special fund terms and the

provisions of the KAGB.

Capital Markets LawFurthermore, securities and their trading is subject to a

number of further markets laws (e.g. Securities Trading Act

(WpHG), Prospectus Act (WpPG), Takeover Act (WpÜG)) and

a plethora of related regulations. The German Small

Investors Protection Act (KAnlSchG) of July 10, 2015

stipulates further rules for non-EU-regulated capital

investments by amending the German Capital Investment

Act (Vermögensanlagengesetz), also in relation to

crowdfunding investments; however, there are also some

exemptions and liberalisations.

EU lawMuch of the German capital markets law, and also some of

the German securities law, is the result of the

54-61_DCM_2016.qxd 9/10/15 10:26 Page 60


61

implementation of EU law directives (MiFID, MAD, etc.).

Currently, due to the already mentioned regulatory tsunami

there are quite a number of further EU legislation projects

which will either lead to further directives being

implemented into German law (e.g. MiFID2, MAD2) or to EU

regulations directly applicable in all EU countries (e.g.

MiFIR, MAR, Benchmark Regulation, CSD Regulation, SLL).

Capital Markets UnionThe EU Commission currently plans to establish a Capital

Markets Union (CMU), for which a green paper was

published on February 18, 2015 and an action plan at the

end of September 2015. The purpose of the CMU is a better

integration and standardisation of European capital

markets in order to lower the cost of financing, in

particular for SME, and to get better comparable

investment opportunities for European and non-European

investors in Europe.

At the moment, the CMU is a basket of short-term ideas

(amendments to Prospectus Directive, rules for high quality

securitisation, easy availability of credit information about

SMEs, enhancing private placements, and the recently

established EU regulation on European Long Term

Investment Funds (ELTIF), etc.) and of medium and longer

term ideas (inter alia, support to cross-border

crowdfunding, venture capital and business angels, leasing

and factoring companies, harmonisation of European

covered bonds markets, the SLL project as well as tax law

and regulatory capital requirements’ equalisation of equity

and debt investments, EU harmonisation of insolvency

laws, etc.). Even if not all of its possible elements will be

realised, the CMU will successfully promote the use of

capital markets both in general and as an alternative to

bank lending.

Conclusion

In summary, the future of German capital markets is likely

to be brighter than their past. There will be a greater

variety of products, products more appropriately structured

for their investors, more demand from certain institutional

investors, but unfortunately also more regulation,

including investor-protection rules. However, the

forthcoming CMU is much less an industry-regulation

project rather than a form of capital markets promotion.

And already this should make us more optimistic.

Contact us:

GSK Stockmann + Kollegen

Rechtsanwälte Steuerberater

Partnerschaftsgesellschaft mbB, Sitz München;

AG München PR 533, Karl-Scharnagl-Ring 8

80539 München, Germany

tel: +49 89 28 81 74 - 0

Taunusanlage 21

60325 Frankfurt am Main, Germany

tel: +49 69 71 00 03 - 0

web: www.gsk.de

54-61_DCM_2016.qxd 9/10/15 10:26 Page 61


62

Private placement bonds poised for further growth in 2015by Marc Lefèvre, Euronext

The local market participants, who had already worked

together in previous years to offer small and intermediate-

sized companies a bond product tailored to their needs,

have responded to this move with a market model of their

own that is European in scope: the Euro PP. The rationale

behind it is to provide a new framework for issuing private

placement bonds.

As it turns out, the idea clearly appeals to issuers,

particularly now that the bond market is picking up.

Euronext bond listings have seen brisk growth in the first

nine months of 2015 (with corporate bonds from listed

issuers alone reaching €51.6bn). More importantly, less

than six months after the Euronext Private Placement

Bonds (EPPB) label was established on March 13, 2015,

over 22 private placement bonds, totalling more than €3bn

and spanning a broad range of issuers (listed, unlisted,

unrated) issuing both straight bonds and hybrid

instruments (convertibles), had been listed.

One feature that may explain why the Euronext initiative

has been so successful is the broad issuer base it

addresses. The goal is to attract not only small-caps and

mid-caps, but also listed and unlisted larger companies

and entities that are either below investment-grade or

unrated. This makes it possible to tap into a larger pool of

investors, which is not the case with unlisted bonds, and

therefore to access more favourable financing terms. In

addition, with EPPBs Euronext offers cost-competitive

listing and a supportive post-trade environment that

combines maximum investor security and transparency

with optimised risk management. The result is to enhance

the quality of relations between issuers and investors.

Another important point is that the fast-path, standardised

procedure for admission to listing is geared to the time

On February 18, 2015, the European Commission officially launched itsflagship Capital Markets Union (CMU) initiative, with private placement asone of its five priority areas. The aim is to build a true single market forcapital that can make more financing available to Europe’s companies andboost growth in the 28 EU Member States.

Marc Lefèvre, Head of Listing

Euronext

tel: +33 (0)1 70 48 26 06


62-66_DCM_2016.qxd 9/10/15 10:34 Page 62


63

Market response since EPPB launch in March 2015 Exhibit 1

Source: Euronext, August 2015

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Capital raised on EURONEXT European markets (€bn) Exhibit 2

Source: Euronext, September 2015

2011 2012 2013 2014 2015 9m+19.4% +11.1% +13.4% +14.1%

j Equities

j Convertible bonds

j Corporate bonds

69.2

14.7

2.2

52.3

21.7

1.7

59.2

29.4

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59.9

47.1

2.7

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82.6

91.8

104.0

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62-66_DCM_2016.qxd 9/10/15 10:34 Page 63


64

EURONEXT PRIVATE PLACEMENT BONDSWhat is it?The Euronext Private Placement Bonds(EPPB) initiative is an extension ofEuronext’s existing bond offer toAlternext’s markets.

Who is it for?EPPBs are designed primarily for smalland mid-sized companies as well asnon-investment grade large entities.EPPBs are suitable for companies thatwant to access alternative fundingstreams to bank credit.

What does it provide?EPPBs provide companies with a costefficient means of diversifying theirsources of funding and securing long-term investments through the bondmarkets.

Fast Facts:

Euronext, as the leading capital raising centre in Europe offers financial solutions for all types ofcompanies and fully supports the development of private placement bond products (Euro PP, HighYield, other private placements).

Listed private placement bonds offer to companies attractivefeatures: long term debt product, competitive costs, longermaturity than a traditional bank loan, bullet and flexible size.

It benefits from a standardised documentation, with no ratingconstraints, and a simple and predictable listing process.Having a Listing Sponsor on Alternext is not required.

EPPB is a new type of offering, supported and facilitated by certain rule changesfor the issuance of bonds on our existing Alternext markets.

EPPBs ENABLE YOU TO LIST YOUR PRIVATE PLACEMENTS BONDS:CURRENT ENVIRONMENT EPPBs OFFER

• Decreasing bank lending/ A proven market Excellent reputation Flexible timing A diversity ofdisintermediation and structure standardised

• Growing Euro PP market products

• New investors Meet investor needs Secure A simple and Competitive• SMEs developing financing predictable listing listing fees

alternatives process

THE SELECTED REGULATORY FRAMEWORK

THE SELECTED PRODUCT

(Euro PP, High Yield, other)

YOUR INVESTOR NEEDSYOUR TIMINGYOUR CAPITAL NEED

(size, maturity, etc.)

THE CHOICE OF MARKET WILL DEPEND ON:

SELECT THE MOST APPROPRIATE LISTING FOR YOUR NEEDS:FREE MARKET –

EURONEXT ALTERNEXT ** MARCHÉ LIBRE AND EASYNEXTREGULATED MARKET * MTF * MTF *

TYPE OF PRODUCT Euro PP, Euro PP, High Yield, Euro PP, High Yield,other Private Placements other Private Placements other Private Placements

REPORTING IFRS Local GAAP or IFRS Local GAAP or IFRS

DISCLOSURE Prospectus approved Information document N/A ***DOCUMENTS by Regulator

MAIN ONGOING Annual and semi annual audited Annual audited accounts N/A *****REPORTING accounts (exemptions for €100 000 (exemptions for €100,000OBLIGATIONS denominations and up) denominations and up) ***** Within the meaning of EU Directives ** Alternext Brussels is supervised by FSMA *** Prospectus required for initial admission on Free Market

Brussels **** Annual and semi annual accounts on Alternext Brussels (exemptions for €100,000 denominations and up) ***** Annual reportingrequired on EasyNext Lisbon

62-66_DCM_2016.qxd 9/10/15 10:34 Page 64


constraints facing issuers, whether they need funding for

capital spending, acquisitions or refinancing. Even better,

Euronext’s market-making programme provides post-listing

liquidity (with a total of 22 bond market makers), although

we are dealing here almost by definition with buy-and-hold

instruments. Euronext staff can also help EPPB issuers

achieve a higher profile.

From a more operational standpoint, the goal of growing

the private placement bond market has made it

imperative for Euronext to adjust the issuance process

and periodic disclosure obligations on the basis of the

size and resources of the potential issuers. Thanks to the

reform of market rules carried out by Euronext and

validated by the various national regulatory authorities,

issuers have been granted a number of simplifications.

They are no longer required to file a prospectus (within

the meaning of the Prospectus Directive), have a listing

sponsor, use IFRSs (French GAAP is also accepted) and

publish annual and half-yearly financial statements. This

is in line with the Transparency Directive, which waives

those reporting obligations for any issuer who issues

securities with a minimum denomination of €100,000, or

who meets other criteria with respect to half-yearly

reporting obligations in the Prospectus Directive

definition of private placement.

The bottom line? This major overhaul of Euronext market

rules gives both seasoned and first-time issuers easier

access to the largest possible pool of the qualified

investors they are targeting, while creating an optimal

environment characterised by moderate costs and fast-

track, simplified procedures. Chances are that private

placement bonds will soon be taking their rightful place

alongside more established market financing instruments.

Follow the link below to access the Euronext website and

the people on the Listing team:

https://www.euronext.com/fr/listings/bond-financing.

About Euronext

Euronext is the primary exchange in the Eurozone with

more than 1,300 issuers worth €3.1 trillion in market

capitalisation, an unmatched blue-chip franchise consisting

of 24 issuers in the EURO STOXX 50® benchmark and a

strong, diverse domestic and international client base.

Euronext operates regulated and transparent equity and

derivatives markets. Its total product offering includes

equities, exchange traded funds, warrants and certificates,

bonds, derivatives, commodities and indices. Euronext also

leverages its expertise in running markets by providing

technology and managed services to third parties.

Euronext operates regulated markets, Alternext and the

Free Market; in addition it offers EnterNext, which

facilitates SMEs’ access to capital markets.

65

Contact us:

Euronext

14, place des Reflets

92054 Paris La Défense Cedex, France

tel: +33 (0)1 70 48 24 45

web: www.euronext.com

62-66_DCM_2016.qxd 9/10/15 10:34 Page 65

Notes

62-66_DCM_2016.qxd 9/10/15 10:34 Page 66

CAPITAL MARKETSINTELLIGENCE

For further information: Tel: +44 1206 579591 - Email: [email protected] - Website: www.capital-markets-intelligence.com

�e Equity Capital Markets Handbook, �e Securitisation & Structured Finance Handbook, �e International Debt Capital Markets Handbook

and �e Global Custody Handbook

THE EQUITY CAPITAL MARKETS HANDBOOK2015

THE SECURITISATION & STRUCTUREDFINANCE HANDBOOK2015/16

THE INTERNATIONAL DEBT CAPITAL MARKETS HANDBOOK 2016

THE GLOBAL CUSTODY HANDBOOK 2016

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OBC DEBT_2016.qxd 9/10/15 09:49 Page 1

Documents

Debt 2016 e-book