2 Feb 2010

Head of Treasury: Demand remains strong for NIB's bond issues

The demand for NIB’s bonds has proven to be strong and in 2010, with a new funding team in charge, NIB will continue to issue global benchmark bonds and diversify its investor base.

2009 was a challenging year for the capital markets. During the year, funding cost was volatile with high costs in the first half of the year, while in the latter part of the year funding costs improved and reverted back to more normalised levels.

Challenging as it was, NIB’s funding team managed to increase the average maturity of the Bank’s new borrowing from 3.6 years to 4.8 years.

In April 2009, NIB issued its inaugural EUR benchmark transaction – a 5-year EUR 1 billion benchmark. Over 50% of the deal was subscribed by investors, who had not bought NIB bonds before. Further in October NIB issued a 5-year USD 1 billion benchmark.

“Despite the challenging market conditions last year, NIB successfully fulfilled its funding targets,” says Lars Eibeholm, Vice President and Head of Treasury at NIB.

Targets for 2010

The funding target for 2010 is EUR 4.1 billion, which is in line with the funding programme of the last couple of years. The diversification of currencies and investor segments remains a principle objective.

According to Mr Eibeholm, during 2010, NIB plans to launch two to three benchmarks of one billion in either EUR and/or USD depending on the market conditions.

Besides the benchmark programme, the Bank intends to maintain its visibility on other public markets, including the AUD and NZD markets, where NIB already has bonds outstanding. Finally, NIB will tap into the plain vanilla and structured private placement markets.

Government debt supply on the rise

NIB’s Head of Treasury predicts stronger competition between major bond issuers.

“An ample supply of debt from many sovereigns with huge funding needs could limit the tightening of funding costs this year for the supranational sector,” he says.

Mr Eibeholm believes, however, that if the economy sees another downturn, the investors’ flight to quality could benefit NIB and result in lower funding costs for NIB’s customers.

“Although we have seen the worst, a fast recovery is unlikely, I’m afraid. There is a bumpy ride ahead of us before the global economy recuperates,” he says.

“This means there will also be a strong demand for NIB’s bonds in 2010.”

Stability and low risk

The Bank’s first benchmark of the year, a 3-year USD 1 billion global transaction made on 20 January, confirms the strong demand. With oversubscription within just three hours, this transaction obtained the tightest pricing by a supranational issuer so far this year.

“This transaction makes me confident in our ability to raise funds at competitive prices to achieve our funding goals,” says Mr Eibeholm.

“Our message to the investors is that the Bank, also in today’s market conditions, offers stability and reliability in addition to the low risk diversified into an AAA/Aaa rated supranational issuer,” he continues.

Thanks to its high asset quality, strong balance sheet and ownership, NIB enjoys the highest possible credit rating. The Bank’s lending operations experience steady growth.

Mr Eibeholm also points out that NIB’s funding needs are significantly lower compared to those of its peers.

Environmental support

NIB has just issued its first environmental support bond. The transaction has raised more than the equivalent of USD 211 million through a Japanese retail offering (see more on the deal).

“We are very pleased with the outcome and believe that this transaction is both a testimony to our funding innovation and to investors’ perception of NIB as supporting the environment,” Mr Eibeholm comments.

NIB is the only major supranational with an explicit environmental mandate. The Bank prioritises and actively seeks projects with direct or indirect environmental benefits.

New funding team

After a very successful career at the Bank, NIB’s long-standing Head of Funding and Investor Relation, Kari Kukka, has retired.

“I would like to take this opportunity to convey our gratitude to Kari for his strong contribution over the years in carrying NIB to its current strong position in the capital markets,” says Mr Eibeholm.

The new Head of Funding, Jens Hellerup, has 10 years of experience working in the Bank’s Treasury Department.

Jens’ experience and knowledge, together with the inspiration of the newly hired Chief Funding Manager, Kamal Grossard-Amin, and the increased authority given to Funding Manager, Angela Brusas, shall maintain the tradition of NIB’s funding operations.