Eksportfinans’ $750 million deal launched at the end of October marks the start of its campaign to establish a benchmark bond programme.
The Norwegian export credit agency is the latest Scandinavian issuer to tap the market in size, in a deal that was led by Nomura, UBS Warburg and Schroder Salomon Smith Barney.
The five-year bond has a coupon of 3.875%, and was well received, particularly among Asian central banks and European institutional investors. This was the agency’s first true benchmark transaction, the first that was systematically planned and marketed, rather than launched opportunistically, and one that lead managers priced to clear on the first day, rather than trying to achieve a set funding level.
Other high-grade issuers in the region are moving in the same direction. It may be that not all can break into a market dominated by such issuers as KfW and Freddie Mac, though. Those that do so fastest have the best chance of success.
Søren Elbech, head of funding and investor relations, is determined to establish Eksportfinans firmly as a benchmark issuer in order to access new pools of investor demand and market the agency’s name.
The bank’s funding requirements have grown beyond what can comfortably be achieved in MTNs. In 2002 they were at $2.5 billion, and this is expected to grow to between $3 billion and $3.5 billion next year. Big liquid deals are significantly costlier to put together than the funding the agency has traditionally used, particularly because it wants to ensure secondary market performance by not pricing too aggressively.
But the benefits of diversification and intensive marketing of the Eksportfinans name outweigh these extra costs. Elbech used to work at the Inter-American Development Bank and is trying to bring the style of execution he learnt there to his new position. He takes a more active role in the book-building process than most funding heads; for the latest jumbo, he was on Nomura’s trading floor, overseeing and accepting orders himself.
The recent jumbo was launched at 4 basis points over mid-swaps, and has tightened since to swaps flat, so those who bought it will certainly be happy. Relative to its peers, too, the bond is trading well – around flat to Rentenbank’s global, issued shortly afterwards, and slightly wide of Bank Nederlandse Gemeenten’s 2007 issue. SEK’s nearest comparable issue is a 2006 eurodollar deal, which is slightly wider than the Eksportfinans deal.
Elbech hopes building positive sentiment will eventually tighten its levels against these peers, and enable it to issue benchmarks more cheaply. “I am convinced that, if we stick to the strategy, plan everything well, listen to investor preferences, monitor market conditions, and use all our experience in terms of bringing the right deals at the right time, demand will increase and our levels will tighten over time,” he says.
“We issue relatively few strategic deals a year, and if a deal performs well in the secondary market, investors will have the incentive to participate in the next. We believe that in the long term this will create price tension enough to drive down funding costs, both versus swaps and relative to peers.”
Growth in MTN issue
Despite the new benchmark focus, the MTN market will remain important, together with private placements, retail-targeted deals overseas, block trades and use of the domestic Norwegian krone market. In 2001, Eksportfinans did 97 MTN trades; this year about 250. Next year, it wants this to rise to between 400 and 500. Many of these will be smaller, more highly structured deals, created from reverse enquiry and tailored to the needs of Japanese private investors. The agency has given its dealers in Tokyo an open mandate, letting them execute trades without waiting for approval from Europe.
To avoid being overwhelmed by this flow of deals, Elbech wants to streamline the agency’s access to MTN markets by creating an automated system to route trades directly from dealer banks to the Eksportfinans back office without human intervention.
He plans to pursue this project in cooperation with other large MTN issuers. He says: “I have spoken to a few of my issuing peers on this, but I have been concentrating on sketching a feasible model before entering formal discussions with them and presenting the idea visibly.”
Meanwhile, the whole high-grade market in Scandinavia looks to be heating up. The Nordic Investment Bank is preparing a benchmark issue. And Sweden’s Kommuninvest is rumoured to be planning another, of about $500 million. SEK has already done two such deals this year. And Eksportfinans plans two more benchmarks in 2003, with one in the first half.
Sovereigns and supranationals typically dominate the market in January and February, but in the following months the agency will be monitoring conditions closely for an opportunity. Recently, in another effort to diversify funding, Elbech has been meeting banks and institutions with a presence in the Canadian, Australian and New Zealand dollar markets.
Eventually, when it has built up enough momentum in the euro market, Eksportfinans hopes to start issuing benchmarks with a global format, but Elbech is cautious, saying such a move will probably not happen until several more euro benchmarks have been successfully completed.
