Opportunity Background
BACKGROUND
The technical Cooperation project (TC) is taking place within the European Bank for Reconstruction and Development (the “EBRD” or the “Bank”) Initiative on Local Currency and Capital Markets Development (the “LC2”). This Bank-wide strategic Initiative aims to identify and support sequenced reforms and policies in EBRD’s Countries of Operation (CoO) that contribute to local currency (LCY) and local capital markets development. The EBRD pursues this role through policy dialogue, investments and targeted assistance to develop local equity and debt markets in its CoO.
Since 2011, the EBRD and members of the LC2 Team carried out a number of country assessments of bond issuance and capital market liquidity in EBRD’s CoO. Several common themes were observed:
- In most markets, there was a general lack of liquidity in domestic corporate debt markets, particularly those denominated in local currency, and very limited appreciation of the factors that limit bond market development;
- In several markets, there was a lack of supply of bonds – both government and corporate issues – denominated in LCY;
- There was a general belief by potential issuers and investors that issuance and transactions fees were prohibitively high and that there were significant delays in issuance approvals and registration of bonds.
Significantly, supervisory agencies in several jurisdictions disputed that the level issuance procedures, listing fees and trading cost constituted a significant impediment to the process of capital market development and to market liquidity. There was a general lack of appreciation on the part of exchanges and regulators that the transaction fees and issuance structure constrained both the supply and liquidity of local currency bonds in their respective markets.
There was also a general lack of awareness of the fee structures in competing and neighbouring markets or other transitional markets outside of the region. Very little comparable analysis in emerging debt markets has been undertaken in a systematic way that is capable of benchmarking – much of the work available is anecdotal or is related to a restricted market comparison. In 2014, EBRD’s LC2 initiated the first comparative study of effectiveness and efficiency in debt capital markets. The 2014 study focused on the Western Balkan countries.
Upon being confronted with the study’s results, several local authorities immediately revised their fee tariffs downwards, as was seen when compared to the follow-up study published in late 2019. As such, the effectiveness of the TC project can be drawn from the previous two studies. After the 2014 study, the regulators of three jurisdictions – Turkey, Russia and Romania – reviewed their cost structure and reduced the more anomalous fees to stimulate issuance. For instance, fees for issuing corporate bonds in Romania were cut by 47% between 2014 and 2019. In all three markets, the moves also led to increased issuance of corporate debt securities. In Romania, five bank bond issues as well as subsequent corporate issuance were observed. In Turkey, there has been increased issuance of TRL-denominated corporate debt securities before the political ructions and volatility made issuance problematic. In addition, interviews in Serbia by prospective issuers revealed that the high cost was a major impediment constraining issuance. Upon publication of the study, the regulator in Serbia immediately acted and sliced their issuance fees in early 2020.
In the past few years, there has been growing interest in issuing local currency and Euro denominated bonds in EBRD CoO – with potential issuers complaining about high fees, which are often “uncapped”. The EBRD is now proposing to undertake a comparative study of the costs and timelines of debt market transactions in domestic debt markets in 2021 broadly based on the same methodology of the first two studies, but with an expanded geographical focus.
The analysis will include both local currency denominated debt and debt issued in major currencies where it is permitted by regulation. Both primary (at issuance) and secondary market transactions costs will be analysed for corporate debt markets. The markets to be covered are four Western Balkans countries, including Bosnia and Herzegovina and the respective jurisdictions, North Macedonia, Montenegro and Serbia, Central Asian countries, including Kazakhstan, the Kyrgyz Republic, Mongolia and Uzbekistan, Eastern European countries, including Belarus, Moldova, and Ukraine, the Caucasus, including Armenia, Azerbaijan and Georgia, and Northern African countries, including Egypt, Morocco and Tunisia, as well as Jordan and Turkey. Reference or control markets in neighbouring jurisdictions – Bulgaria, Croatia, Hungary, Poland, Romania, Russia and the Slovak Republic – will also be analysed employing the same methodology. Other markets and reference or control markets may be added as determined between EBRD and the Consultant.
In addition to the quantitative element of the study, there will also be a qualitative element involving the analysis of the timelines and procedures involved in issuing both corporate and government debt. The study of the government debt market will cover negotiable market-based debt issues only and will provide breakdowns of the auction method, announcement and funding schedule, settlement or auction fees and the method of selling the securities. It is anticipated that the corporate primary issuance process will be more in-depth, providing a general estimate of timelines, regulatory approval processes as well as assessments of lodgment and listing costs, methods of sales of securities and custodial charges. In some ETC countries corporate issuance may be limited and the assessment will attempt to identify quantitative and qualitative reasons for this.
To accomplish this Assignment, the EBRD seeks to retain the services of an experienced bond market development expert (the “Consultant”) to undertake a comprehensive analysis under agreed guidelines that will create a comparison for evaluating debt market transactions costs and timelines in the above mentioned selection of EBRD CoO (the “Assignment”).
Opportunity Structure
OBJECTIVES OF ASSIGNMENT
The objective of the Assignment is to develop a comprehensive country-by-country assessment of the cost of issuing and transacting in local currency securities, more precisely in corporate bonds, and compare them to the previous results. It will allow EBRD’s selected CoO to benchmark themselves against each other and other emerging economies from their region. It will also help policy makers to identify potential cost or time impediments to capital market development. Moreover, it will allow the LC2 team to check whether they have achieved a significant decrease of listing and transaction costs by providing TC. The output will also be available to assist EBRD bankers in making comparisons of the all-in cost of lending vis-à-vis local currency bond issuance.
This project proves relevant concerning the COVID-19 pandemic, as companies in EBRD CoO struggle to obtain sufficient funding. This is partly due to high listing and transaction costs of debt securities, which effectively bar companies from tapping local capital markets. By assessing the costs and comparing them to each other, this study will highlight unreasonably high costs in EBRD CoO and put pressure on the government authorities to resolve the issue.
For instance, upon being confronted with the last study’s results, the Serbian government authorities immediately revised their fee tariffs downwards. The same effect was observed in other jurisdictions.
SCOPE OF SERVICES
In order to fulfil the objectives mentioned above, the Consultant will be required to:
3.1 In consultation with the EBRD’s Operation Leader (“OL”) and based on the previous studies, agree on the specific parameters of the study and standardise the information output across the selection of EBRD CoO:
- Detail the types of instruments along with their generic terms and conditions issued in each selected CoO. This should include any currency issuance restrictions;
- Briefly describe regulatory issuance limits, if any, as well as disclosure requirements.
- Differentiate between public issuance offerings and private placements;
- Identify trading and listing requirements and restrictions for corporate debt including trade reporting;
- Provide a breakdown of all registration fees and non-interest rate related borrowing costs;
- Graphically represent the issuance timeline for both public issues and private placements of corporate debt securities;
- Detail the primary issuance process for corporate debt including costs, system of sale, auction method and auction award system. Create a timeline of the auction process.
Include any transactions or bid registration costs
3.2 Undertake an analysis of the following transaction’s cost characteristics of both government and corporate debt markets, based on previous studies:
- Identify all transactions costs including settlement charges for both local and international investors in corporate bond markets from the data sourced by the LC2 team. This should include baseline brokerage charges (before volume discount) as well as custodial and registry charges;
- Compare both smaller and larger issuance amounts across markets in order to capture the impact of uncapped fees;
- Arrive at an approximate measure of the current turnover of the corporate debt market.
3.3 Undertake an analysis of the indirect costs – primarily taxation – of both government and corporate debt markets including:
- Transactions taxes, if any;
- Withholding tax per class of security;
- Taxation of individual and corporate investors on interest income and capital gains.
3.4 Establish an overall ranking of market effectiveness for issuance costs, transactions costs and issuance timelines for corporate debt.
3.5 Establish an overall ranking of market effectiveness for issuance costs, transactions costs and auction procedures for government debt.
3.6 Compare the study’s results to the results of the previous studies and indicate whether there has been a change in the ranking for the respective countries.
3.7 Identify impediments to issuing domestic debt and recommend incentives that may promote or encourage domestic debt issuance, particularly in local currency.
IMPLEMENTATION ARRANGEMENTS
4.1 The assignment is expected to start in Q1 2021 and has an expected duration of nine (9) months.
4.2 The majority of the work will be undertaken using publicly available sources as well as information gathered by the LC2 team from supervisory authorities and issuers in target countries. Additionally, the Capital Market Assessment Reports of the LC2 will be consulted.
4.3 In order to streamline the process the LC2 team will consult with EBRD’s resident offices and request the nomination of an internal point of contact. It is anticipated that each resident office will co-operate fully with the LC2 team. To facilitate data collection, the LC2 team will identify contacts at the regulator, market participants, issuers, stock exchange and central bank, initiate a first enquiry, and conduct the data sourcing as much as possible. The Consultant shall carry out the tasks stated herein through coordination and management provided by the OL and any other person explicitly authorised by the OL and report to the OL.
4.4 Consultant efforts for the assignment is expected to be approximately 160 working days undertaken on an intermittent basis over a nine-month period. Should any significant delay occur in the collection of information, the Consultant shall immediately inform the Bank and request instructions on proceeding. It is envisaged that the report is published by September 2021.
4.5 Where appropriate, the Bank may require the Consultant to temporarily suspend work.
4.6 The Consultant should provide their own office, communications, interpretation/translation, and other assignment-related logistical support.
4.7 The Consultant is not expected to travel for this project other than for the final presentation to the EBRD Headquarters. Travel (for both the Consultant and LC2 team) might also be needed if the desktop data gathering process proves incomplete or inadequate. The travel (for both the Consultant and LC2 team) is subject to EBRD guidance on travel of consultants and EBRD staff.
DELIVERABLES
The deliverables shall include:
5.1 A Methodology Document that details the methodology used to assess the countries and rank them to each other and the Questionnaire to be sent to a countries’ counterparts for data gathering at the end of 30 working days after commencement of the Assignment.
5.2 A Progress Report and comparative table covering costs and procedures in identified countries as well as any areas of data shortfall to be presented at the end of 90 working days after commencement of the Assignment.
5.3 A Comparative Study of Transaction Costs and Timing for Issuance, Listing and Trading of Locally Issued Debt Securities in EBRD’s Countries of Operation (the “Final Report”), no later than six months after been agreed upon the contract or as otherwise agreed by the parties, containing a summary of work done and results obtained, as well as any outstanding matters or additional work required for satisfying the general objectives of the Project.
5.4 A presentation of the Final Report shall be delivered by the Consultant at the EBRD Headquarters. However, the OL may agree to a virtual delivery of the presentation.
All deliverables shall be provided in electronic format to the OL. The Final Report shall be provided in hard copy as well.
Competitive Scope
CONSULTANTS PROFILE
The Consultant will be a company or a group of companies which is specialised in emerging markets and listing and transaction costs of locally issued debt securities with a proven track record in data collection, data analysis, and carrying out comparative surveys. Previous project experience in emerging markets is a distinctive advantage.
The Consultant has to propose a team of highly specialised experts who will carry out the assignment. It is expected that the Consultant’s team of experts will consist of:
(a) Team Leader
- Preferably 15 years of previous professional experience of working in the financial services industry, preferably the debt capital markets department of a commercial bank or at an asset management company;
- Preferably ten years of previous project management experience including acting as the Team Leader on similar assignments;
- In-depth knowledge of debt markets in frontier or emerging market countries using their local currencies;
- Excellent interpersonal, communication and presentation skills, with the ability to interface at all levels, building strong relationships with key market stakeholders including authorities;
- Excellent analytical and writing skills;
- Proficiency in written and spoken English.
(b) Supporting Analyst
- Preferably five years of previous professional experience of working in the financial services industry, preferably the debt capital markets department of a commercial bank or at an asset management company;
- Proven track record in the analysis of and work in frontier or emerging market countries using their local currencies;
- Experience in producing analytical reports and in-depth assessments;
- Experience as an expert in at least two similar projects with exposure to debt capital markets.
All the experts of the Consultant engaged in this project are generally expected to have extensive knowledge of LCY money and debt markets. It is the Consultant’s responsibility to ensure that its project team is provided with the technical equipment needed for the implementation of the project. The Consultant should arrange its own communications, interpretation/translation, and other assignment-related logistical support, as necessary.
Submission Guidelines
Responses must be sent through the EBRD Tender Portal before the indicated deadline.
Deadline of Submission of Offers: 01/25/2021 11:00 AM