Infrastructure Project Finance Global Capital Markets

Professor Robert B.H. Hauswald Kogod School of Business, American University

Case Study
EBRD: Marketing Strategy for the Debut Bond Offering

This true case is meant to illustrate the challenges and mechanics of a global bond offering. In
many respects, the European Bank for Reconstruction and Development (EBRD) has to deal with
the same issues that would arise when one moves from loan to fixed income security funded project
finance. It also provides an introduction to the business practices in international capital markets,
their advantages and disadvantages, and the negotiation of fixed income deals. Finally, one can
analyze international bond pricing and the marketing issues that determine the successful placement
of global fixed income securities.
Please answer the following questions which will facilitate the understanding and subsequent
discussion of the case.

1. How are international bonds placed with investors?

(a) What are the steps in preparing an international bond offering? Identify the different
stages and draw a time line.
(b) Identify which aspect of the fixed income security and offering mechanism is determined
in which stage of the process.

2. Why does the EBRD wish to fund its operations in the Eurosecurities rather than the Eu-
robanking markets?

(a) Determine the pros and cons of each funding approach.

(b) How might the EBRD’s decision to fund itself in the Eurobond markets be related to
its extensive participation in project finance?
(c) What conclusions for project finance emerge from the fact that the major providers of
project finance (IBRD, IFC, EIB, EBRD) fund themselves in the international fixed
income markets?

3. What challenges does the EBRD face in marketing itself and its products in the international
financial markets?

(a) Why are first bond issues so much more important than subsequent ones?
 (b) How are success and failure defined in securities offerings in general and international
bond offerings in particular?
(c) What factors determine the success of an international bond offering such as the EBRD’s?

4. Determine a recommended strategy for the bond launch and compare it to the strategy
outlined in the case.

(a) Describe the strategy proposed in the case. What are its strengths and weaknesses?
(b) What are the advantages and disadvantages of your strategy?
(c) Why is your strategy superior to the one outlined in the case?

5. Analyze the strengths and weaknesses of the four investment banks bidding for the deal.

(a) What are the competitive advantages and disadvantages of each?

(b) How would you choose a lead manager?

6. Determine an appropriate initial price for the bond.

(a) What factors affect bond prices? What information is required to price a bond?
(b) What methods are used to initially price bonds in general and the EBRD’s bond in
particular?
(c) How would you price the bond?

7. What objective should the issuer pursue in its debut bond offering?

(a) Should the EBRD be profit-guided or profit-maximizing?

(b) How does the operational objective affect the marketing strategy?
(c) What objective would you rather pursue?