French sugar

Will a major French bond issuer get the æsatisfactionÆ it demands from Asian investors?

So far it's been to Vienna, Milan, Zurich, Madrid, Lisbon, Brussels, Amsterdam, Dublin, London, Edinburgh, Munich, Cologne, Hamburg, Berlin, Helsinki, Stockholm, Oslo, Copenhagen, Montreal, Moscow, Budapest and... Asia.

"Yes, it's like a Rolling Stones tour," laughs Ted Lord of Barclays Capital, which is organizing the mammoth roadshow for French issuer, CIF Euromortgage.

Nathalie Fontaine-Aubin is younger and easier on the eye than Mick Jagger, but the head of capital markets for the French issuer is just as aggressive a tourer and saw her global tour finally come to Asia last week hitting Singapore, Hong Kong, Macau, Seoul and Tokyo.

"We're seeing a very big pick-up in interest from this region," she says. "Our secured mortgage bonds interest a lot of Asia investors, because they are a serious alternative to buying US agencies or European government bonds. There's strong liquidity, a good spread and in a sea of turbulence, we are a stable triple A issuer which has performed quite well for investors who buy in the primary market."

Adds Lord: "We're seeing a lot of interest from Asian central banks, which like the security of this product."

Secure? Indeed, the CIF Euromortgage vehicle was deliberately created to be bankruptcy remote and has 118% overcollateralization. Under French law, CIF Euromortgage is a special purpose vehicle and thus its bonds will still be serviced even if its parent, CIF Group [the mortgage originator] goes bankrupt.

CIF Euromortgage is a leading French mortgage player, and its bonds are backed by portfolios of French mortgages and it is triple A rated.

Fontaine-Aubin says Asian central banks could be a big buyer of these euro-denominated bonds. Lord says there is a general trend among these banks to reweight their reserves into euros: "Two years ago I visited some Asian central banks and the percentage of euro in their portfolios would be 3-4%. But that's changing," he says.

He estimates that Asian central banks [including Brunei] have $1 trillion and if they reweighted to a 10% euro weighting - which he says is not a very aggressive stance - that would open up a E100 billion portfolio for credits such as CIF Euromortgage to tap.

Obviously central banks are obsessed with liquidity. But liquidity is ensured, says Lord, by the fact that eight dealers are required to make prices in CIF Euromortgage's issues.

Japanese insurers and Asian private banking clients are also buyers.

"I really want to create a diverse investor base," says Fontaine-Aubin, "both in terms of geographical distribution, but also in terms of type of investor."

Asia made up only a small percentage of the buying of its last issue (only one or two tickets), but this time round she hopes Asia could buy up to 20%.

This is only the second year that CIF Euromortgage has issued, although its October 2008 covered bond has been a strong performer, having tightened around four basis points. This has clearly outperformed some German Pfandbriefe names - which is the nearest comparable.

Looking to issue at levels around 35bp over bunds, it will spend more of its time courting Asian investors in the future.

So like the Rolling Stones, expect Fontaine-Aubin to be back on another tour. Given she has to raise E3 billion this year and the same amount next, she is likely to find Asia a useful source of demand.

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