THE introduction of the euro is expected to see the creation of a liquid debt market, providing a fresh source of capital for Asia's cash-strapped firms. Euro-denominated issues have already come to the market even though the currency is still some months from its start date including last month's Orange issue. The British mobile phone group controlled by Hutchison Whampoa built a euro tranche into its US$1 billion issue, with two other tranches denominated in pounds and US dollars. The euro tranche proved to be the second largest high yield issue completed in the market so far. More than 45 investors - principally from continental Europe - flocked to invest in the euro tranche and the bond as a whole was more than twice oversubscribed. For a company like Orange which, despite not yet having made a profit, has shown persistent growth in market share and whose stock has been a stellar performer in the equity market, such a reception is not too surprising. What is more interesting is that Orange managed to secure financing at all in a currency that you cannot even use yet. It is not until January 1, 1999 that the euro will be launched. Until then it is still uncertain what the ranking of each member currency will be and at what rates they will be converted. Then why the boom in euro-denominated issues? Since the beginning of this year issuers have been scrambling to build exposure in the euro market. 'It is because it is the currency of the future,' said Rob Gulden, senior investment manager at Lombard Odier. In reality the euro market is still the ecu market and will remain so until its launch. But in the debt markets the fact that all government bonds of the so-called euro-11 countries will be redenominated in euros has spurred an explosion of activity. 'There is so much activity in the market that people are talking about the euro-market even though it is not yet here,' Mr Gulden said. In the first six months of the year euro issues have grown, from an albeit small base, by eight times, from $5.4 billion to $44.2 billion. The dramatic pick-up in activity is testament to the acceptance in financial markets the euro will be here to stay. Analysts say as long as bonds are denominated in ecu, they will continue to contain pounds, Danish krone, drachma and Swedish krone weightings as part of the ecu basket and these will only be eliminated when the euro is launched. Once the euro arrives all ecu bonds will be converted on a one-on-one basis to euros. Analysts say the risk that the non-eurozone currencies might experience turmoil is more than offset by the danger of launching a eurozone currency bond, which faces an as yet uncertain redenomination valuation. In contrast to the agreed one-on-one changeover from ecus to euros there is still uncertainty over the rates at which the eurozone currencies will convert to euros. Orange finance director Graham Howe said it was decided that Orange's bond should feature a euro-denominated tranche to also reflect the future stream of euro earnings Orange expects to begin receiving from its recent mobile licence bids in Austria and Belgium. The issue, primarily to finance its international licence wins, and in the short-term temporarily pay down the group's senior debt proved a runaway success despite being rated below investment grade by Moody's Investors Services at Ba3. Nominally the pricing seems tight, with the dollar tranche yielding 8 per cent, the euro tranche 7 per cent and the pound tranche at 8 per cent, but represents Libor (London Interbank Offered Rate) plus 100 points, the same level of the group's senior debt facility, which was increased last year. Investors now face a dizzying array of issues and a limited database of euro issues on which to strike up a benchmark. Surprisingly, it is the French OAT bonds, which have seen consistent euro-denominated issues over the past five years, that come closest to providing an adequate reference point. From January 1 it is all likely to change. At the expected price of France's chagrin, the deutschemark bonds are set to become the largest euro-denominated bonds in the market and as the biggest euro-zone economy Germany is expected to want to grab for itself the mantle of euro benchmark provider.