Martin Egan at BNP Paribas Talks GCC DCM Pipeline, Oil and Geopolitics, and LIBOR

🎥 May 21, 2018 📺 Bonds & Loans ⏱ 3m 👁 359 views

Martin Egan, Vice Chairman of Global Markets at BNP Paribas sat down with Bonds & Loans at the Bonds, Loans & Sukuk 2018 ...

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About Martin Egan

Martin Egan, formerly Global Head of Primary Markets and Origination at BNP Paribas and chair of the International Capital Market Association's primary markets practices committee, has spoken about debt capital markets in the Middle East and the transition away from LIBOR. In 2018, Egan described the year as "a good year so far for the region" with "large submissions from Saudi and from the Qataris" receiving good responses, and he expected continued issuance due to "a lot of redemptions coming up now in 2019" and "rates still at historical lows." He noted that geopolitical risk concerns in the region were "caveated by the fact that you've got all prices rising" and commodity prices rising, which he called "a real sort of good backstop for the region." Egan stated that "credits are pricing at pretty fair levels" but that geopolitical risk could become "more pronounced" if the region became "more problematic." Regarding the transition from LIBOR, Egan said "there is no easy answer" and predicted the result would be "less of a sort of global standard but very specific standards in each relevant jurisdiction," emphasizing that the most important factor is that any replacement rate is "fair and transparent." In earlier remarks, Egan described his role chairing the primary markets practices committee, which he said "handles the underwriting capacity and capabilities of the marketplace" and includes members from major international and domestic banks. He stated that the committee meets quarterly and focuses on "improving market practice," including allocation procedures and legal aspects, with the goal of ensuring "the market works as efficiently as it can" and that "everything we do is seen to be fair and clear to all parties."

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Transcript (3 segments)

Martin Egan0:08

Well, it's been a good year so far for the region. We've had some large sub from Saudi and from the Qataris as well, which has both received very good responses. We've seen some supply in the corporate space and the bank space. I think overall we expected to be a good year for issuance in the region. A lot of redemptions coming up now in 2019, and we'll see some pre-funding also. With rates still at historical lows, I think many borrowers will look at the markets now rather than wait, so expect a good deal flow. But we have to be aware of the sort of market dynamics, the geopolitical risk concerns partly around the region itself. But much of that can be caveated by the fact that you've got oil prices rising, you've got commodity prices globally rising, which would be a real sort of good backstop for the region. In terms of selling risk to investors, we're overall pretty positive about supply. And actually, I think there's a lot of pent-up investor demand. There's a lot of value in the region still, and we think investors will embrace it.

It's been a year of fairly pronounced political noise, as you say, and we have the added concern around protectionist stance of some of the large global trading nations. Undoubtedly, that is a worry. I think for this region specifically, investors do look at the geopolitical risk, but they really counterbalance that with the commodity price. So credits are pricing at pretty fair levels with some good performance. But in certain scenarios, I think the geopolitical risk will become more pronounced, especially if you see the region become more problematic. But I think overall, the efforts made by especially the sovereigns and the banks, and hope for the corporates, to come with global investors will pay off. Undoubtedly, a global investor will take into account that geopolitical risk, and then they will buy each specific credit on its fundamentals. So again, plenty of risk in play, but we feel constructive that as long as we remain in this sort of situation now, investors will be very active in the region.

It's a great question. Again, there is no easy answer because the markets base pricing of trillions of instruments around the relevant LIBORs globally, and we're now in the process of an evolutionary change. There is no clear global answer. You will see, I think, different jurisdictions focus on what they think is fair and transparent for their local marketplace. One thing to me is critical: we know very clearly the banks and regulators are really focused on this matter now. And for borrowers especially, it's a key fact in terms of how they manage their asset and liability management going ahead. So no clear answer. We would expect the end result to be less of a sort of global standard but very specific standards in each relevant jurisdiction, with some consistency across the board. The most important thing is it's fair and transparent, and all market counterparts can understand how a particular rate is set, but also who inputs data into the setting of that rate, and it's seen to be appropriate.