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Pfandbriefe leave their Mark

In their quest for a broader investor base, Pfandbrief issuers are venturing out of the Deutschmark. Some deals did well, some not so well. And the cost is high. But diversification is the key in the run-up to the euro. By Antony Currie.

A fistful of dollars

Since March three borrowers have issued Pfandbriefe in currencies other than Deutschmarks and in June another became the first to issue a fully registered global Pfandbrief - the previous four so-called globals had all been issued a rule 144A exemption.

These issues represent the next step in the process of internationalizing a market which until two years ago was almost exclusively domestic. The traditional Pfandbriefe were illiquid instruments, usually between Dm50 million ($27 million) and Dm200 million, and sold as quasi-private placements to buy-and-hold investors. They rarely achieved more than 10% to 15% involvement from foreign investors.

Although Pfandbriefe are the second largest bond market in Europe, there were fears that a purely domestically oriented product would lose out in a single-currency Europe. So in mid-1995 the jumbo sector was introduced, offering large issues of at least Dm1 billion through a syndicate of three official market-makers or more.

The sector has proved popular, with over 100 issues raising Dm182 billion by the beginning of July this year. Foreign interest has increased, not just from German subsidiaries in Luxembourg and Switzerland: last year, when the first Euro-144A-style global jumbo Pfandbriefe were issued, anything up to 70% of paper was said to have been placed abroad.

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