{"id":549465,"date":"2006-07-10T08:46:29","date_gmt":"2006-07-10T08:46:29","guid":{"rendered":"http:\/\/localhost:8888\/wordpress\/technology\/549465-mtn-bond-issue-sour-grapes.html"},"modified":"2006-07-10T08:46:29","modified_gmt":"2006-07-10T08:46:29","slug":"mtn-bond-issue-sour-grapes","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/technology\/549465-mtn-bond-issue-sour-grapes.html","title":{"rendered":"MTN bond issue: sour grapes?"},"content":{"rendered":"

This is according to a Business Day<\/i> report, which cited Futuregrowth Asset Management fixed-interest head Andrew Canter. He said that while it was MTN\u2019s \u201cprerogative not to place the entire issue, it came to the market with a free bidding system and then unilaterally decided not to play by converting to a fixed-price method\u201d. <\/p>\n

Is this is the case, though?<\/p>\n

MTN raised R6,3bn in what it termed \u201cthe biggest capital raising by a corporate in this market’s history\u201d. It had previously told the market that it would have been \u201ccomfortable\u201d to raise between R6bn and R8bn for its R33,5bn buyout of the Lebanese-controlled mobile company. <\/p>\n

In a statement last week, MTN said the total book size \u201cexceeded R10bn\u201d, but chose to settle the final issue size at R6,3bn, or 21,3% lower than the upper limit of R8bn.<\/p>\n

The affair was completed as follows: R5bn on a bond which matures in four years with a coupon set 145 basis points higher than the R153 government retail bond, and R1,3bn on an eight-year bond with a spread set 150 basis points higher than the R201 government bond. <\/p>\n

A number of people Moneyweb<\/i> spoke to said there was nothing sinister about the bond issue, and criticism could be a case of sour grapes. <\/p>\n

Nonetheless, how exactly do corporate bond issues work? <\/p>\n

Old Mutual Asset Management\u2019s head of fixed income, Arno Lawrenz, explains that there are two common ways in which a large bond issue like MTN\u2019s can be handled. <\/p>\n

The first is the so-called Dutch auction; this is a bidding process that determines a clearing price for a particular issue, and can be non-transparent. \u201cSay, for example, I\u2019m looking for R100m in bonds from an issuer like MTN,\u201d says Lawrenz. \u201cI put in a bid where I will buy at a spread over a government bond of say 150 basis points. At the close of the auction, the arranging bank then comes back to me to say whether my bid was completely or partially successful or not at all. If the bid was not accepted, then I know I went in too high with my spread.\u201d <\/p>\n

The clearing price is thus the lowest spread at which the issuer is able to place either all or part of its intended issue. South African corporate issuers have increasingly been using this process.<\/p>\n

The second typical method is the book-build, which MTN used. \u201cIn this case,\u201d says Lawrenz, \u201cyou have a lead arranger which manages the placement process, and there is a feedback loop of information, which helps investors to modify their bids depending on the market demand.\u201d Deutsche Bank was the lead arranger for MTN. <\/p>\n

It is important to note that prior to both methods, the issuer and the lead arranger embark on a road show to inform potential investors of their funding rationale as well as the intended method by which the bonds will be placed. <\/p>\n

\u201cIn a book-build, as a potential investor you will have feedback from the arranger as to where your bid lies relative to the rest of the market. You are then in a position to revise your offer should you want to. \u201c <\/p>\n

Lawrenz says MTN and Deutsche Bank did inform the market it would be doing a book-build, and that above a certain spread they would resort to other sources of funding: \u201cBeyond that spread it was certainly MTN\u2019s prerogative whether it wanted to accept bids or not.\u201d<\/p>\n

\u201cFor such a giant potential size of issue, it is completely understandable why Deutsche Bank would have advised MTN to follow a book-build approach to placing the issue, keeping in mind also that current market conditions have not been kind to corporate issuers. <\/p>\n

\u201cInvestors should be happy in the long term that MTN management intends to keep the cost of capital as low as possible. It\u2019s a good sign to see that they are not desperate for money at any price from the bond market,\u201d says Lawrenz. <\/p>\n

MTN has told the market that the rest of the money (the difference between the R6,3bn and R8bn) would be obtained through bank finance.<\/font> <\/p>\n

Discuss this article<\/font><\/a> <\/font><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

MTN\u2019s bond issue to raise funds for its purchase of pan-African operator Investcom was criticised by some, who said that Africa\u2019s largest mobile firm\u2019s refusal to accept all the bids amounted to \u201cunethical manipulation\u201d of the bond market.<\/p>\n","protected":false},"author":23,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"idle","_sma_x_autopost_error":"","_sma_x_post_id":"","_sma_facebook_post_id":"","_sma_instagram_post_id":"","_sma_threads_post_id":"","_sma_x_attempts":0,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-549465","post","type-post","status-publish","format-standard","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/549465"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=549465"}],"version-history":[{"count":0,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/549465\/revisions"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=549465"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=549465"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=549465"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}