Citicorp, Chase Borrow in Mideast
Tapping an unusual source of funds, Citicorp and Chase Manhattan Corp. are actively placing medium-term notes with individual investors in the Middle East, according to market sources.
Each company has reportedly sold roughly $100 million in senior medium-term notes since September.
The sales come just months after Citicorp privately placed $590 million in convertible preferred stock with a Saudi Arabian investor, Prince Waleed bin Talal. The sales suggest that the Middle East is emerging as a source of funding for big-name U.S. banks.
Investors in the region traditionally have not been aggressive buyers of medium-term notes. But many of them are flush with cash these days, having shifted into liquid investments during the Persian Gulf crisis.
Institutions Usually Tapped
One capital markets source said most of the medium-term notes were placed with wealthy individuals in the Arab countries. The securities are typically sold to institutional investors.
The sales reflect the close ties the companies have to the Middle East. Citicorp and Chase have been active lenders in the oil-rich countries for years.
"Both of those names are very familiar in that apart of the world," said a source familiar with the transactions.
A Chase spokesman said his bank is not aware of any special interest among private Middle East investors in Chase notes.
A spokeswoman for Citicorp said: "We have a broad investor base. And as to specific buyers, that's with the dealers."
Banks issue medium-term notes when they want too obtain funding quietly, without the publicity that comes with underwritten deals.
Cheaper Funding Vehicle
In addition, medium-term notes are often less expensive than underwritten debt.
Banks can issue the notes in small amounts and price them to appeal to just a few investors, rather than to the large number needed for an underwritten offering. And they can issue notes in a range of maturities tailored to their loan portfolios.
"The best thing about them is they have tremendous flexibility," said Mara Hilderman, a money-center bank analyst at Moody's Investors Service Inc. She said banks issue them in a variety of currencies, with either fixed or floating rates, and with a range of maturities.
Most Notes Are Senior Debt
Most medium-term notes are senior debt issued at the holding company level, but some banks have started to issue subordinated medium-term notes.
Chase has a shelf registration authorizing it to issue up to $1.375 billion in medium-term notes, according to the spokesman, and at Sept. 30 it had $875 million in such notes outstanding. Citicorp filed a shelf registration in August to issue up to $1.5 billion in debt securities, including medium-term notes.
The Middle Eastern buyers are said to prefer the Chase notes. "The view in the market is that Chase has hit bottom and is coming back," said one market source.
The asset-backed securities market was roiled Thursday by the news that the U.S. Senate voted in favor of a cap on credit card interest rates. New issues of securities backed by credit cards saw their yields rise about five basis points, while yields of more seasoned issues increased as much as 30 basis points.