Most of annual funding done by summer
In 2018, NIB expects to raise EUR 5.5–6.5 billion in new funding—about as much as last year, when the Bank raised EUR 5.9 billion. The Bank will carry on its strategy for acquiring funds in international capital markets, which includes issuing global benchmark transactions as well as continuing the NIB Environmental Bond (NEB) programme, accompanied by smaller deals in various currencies.
This year, NIB is planning to issue two to three global, USD-denominated benchmarks in shorter and intermediate maturities. The Bank’s green bond programme will continue, with issues planned in EUR and in Nordic currencies. Transactions in other public markets, like AUD, NZD or GBP, will complement the funding programme. Finally, the bank will continue to serve specific investor needs and issue smaller, structured private placement transactions.
“In the new year, our proven strategies will continue to guide our activities. Being renowned for its frequent USD global benchmark transactions since 2002, the Bank has become a major Nordic issuer of green bonds. In combination with our activities in other public and private placements, these markets offer us diversification of currencies and investors, which among others is part of our funding strategy”, says Jens Hellerup, Head of Funding and Investor Relations at NIB.
Since the beginning of 2018, NIB has raised EUR 2.1 billion. Very recently, NIB issued the first USD global benchmark of the year. Investors from around the globe welcomed the three-year USD 1 billion bond and the transaction was more than 1.5 times oversubscribed (click here to read more).
The Bank was the first issuer to seize opportunities in the Kauri market, and issued a NZD 400 million, 2023 transaction in early January. Due to high redemptions, the primary market for bonds denominated in GBP usually gets off to a brisk start. This year was no exception, so NIB has issued a five-year, GBP 500 million bond, the Bank’s single largest offering in GBP. In addition, bonds in EUR, MXN, NOK and SEK have been issued. Click here for more information on current issuance.
Last year, NIB’s funding amounted to EUR 5.9 billion through 58 transactions in 12 currencies, with an average maturity of five years. A very substantial part of the funding was raised through two global USD benchmark transactions: a USD 1.25 billion issue with a five-year maturity was issued in January, and in September, three-year, USD 1 billion notes were placed.
“Demand for both transactions exceeded the issue size, which is proof of the appeal of NIB to investors worldwide. By choosing different maturities, the Bank was able to attract different investors: the largest investor group in the five-year transaction were bank treasuries, while the three-year maturity attracted central banks and other official institutions”, Mr Hellerup comments.
During the summer, a two year, USD 500 million issue was placed to cater for liquidity needs from collateral payments under derivative contracts.
“Good timing of benchmark transactions is essential for NIB; however, liquidity requirements from collateral obligations can materialise on very short notice, so the Bank needs to react dynamically to funding needs during the year, too”
Jens Hellerup
Senior Director, Head of Funding and Investor Relations at NIB
Phone: +358 961 811 401
E-mail: jens.hellerup@nib.int
The Environmental Bonds fit well with NIB’s mandate for environmental lending and help to diversify the investor base. In 2017, NIB issued seven environmental bonds with a total size of EUR 920 million. Click here to read more about NIB Environmental Bonds.
In May 2017, the Bank increased the EUR 500 million, 2024 green bond to EUR 1 billion, which made it the largest outstanding NIB Environmental Bond. The green bonds in Swedish kronor have for many years been an important part of the programme: for instance, the 2023 line of SEK 1.5 billion initiated in 2016 was increased to SEK 3 billion last year.
Other public issues and private placements helped to further diversify the Bank’s funding sources. Member country currencies (EUR and the Nordic currencies) represented 29% of the total issuance in 2017, which is the highest share historically. The share of USD funding dropped in 2017 by more than 10%, which reflects three USD benchmark issues in 2016, versus two last year.
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Nearly 80% of the planed funding volume of EUR 5.5–6.5 billion has already been raised by the summer. Even though the first months of the year are typically busy and account for most of the annual funding, the outcome of this year’s H1 was larger than usual.
“We raise funds to match the Bank’s liquidity needs for a year’s time. So the funding team always looks a year ahead”, explains Jens Hellerup, Head of Funding at NIB.
Every day, the Bank calculates its liquidity needs for the next 365 days and checks them against the liquidity available. Shortfalls need to be funded. The calculation includes a stress test of all expected cash in- and outflows, with projected changes in interest rates or exchange rates.
“It means eventually that NIB can stay out of the funding markets for a year, while keeping the level of lending operations as planned, even when there is turmoil in the markets”, says Mr Hellerup.
How does this influence the funding activity?
Since the liquidity needs—typically, maturing debt and planned disbursements—are calculated on a daily basis, the funding activity is tightly related to what the liquidity needs are expected to be on each particular day in one year’s time.
NIB can stay out of the funding markets for a year, while keeping lending as planned, even when there is turmoil in the markets.
Jens Hellerup
Head of Funding at NIB
“On the liability side, we have two larger USD benchmarks and a number of smaller transactions maturing within a year. As a result, a total of EUR 5.1 billion will mature in the first half of 2019. This is one of the reasons why we had to raise a higher amount by the summer of 2018”, Mr Hellerup continues.
“Changing market conditions increased the liquidity needs for collateral postings. Also, NIB’s loan disbursements were higher than had been expected. This development added to the higher funding need for the first half of 2018.”
What funding transactions were made during the first half of 2018?
USD bonds in the benchmark format are the most important part of the funding programme. They have the largest volumes and provide a liquid price reference for many other markets. The three-year bond issued in January attracted demand for a total of USD 1.4 billion, mainly from central banks and asset managers from Europe and the Americas.
“We spotted an opportunity in the market that matched the Bank’s need for liquidity before the end of February. The opportunity appeared shortly after the usual rush of new issues in January”, says Mr Hellerup.
At the end of February, another global note of USD 500 million with a two-year maturity was sold.
“The idea was to replicate the success we’d had with a similar, two-year transaction in 2017. The amount of these two transactions is smaller than for a usual global benchmark, but we decided to go for it to take advantage of the flexibility that smaller issues offer”, Mr Hellerup explains.
In order to finance collateral needs in the liquidity planning, another USD 500 million bond followed shortly after. This time it was a three-year, floating-rate note in the EMTN format.
“From a strategic perspective, one could say that both the transactions prove that NIB has become a more flexible and dynamic issuer.”
The NIB Environmental Bond (NEB) programme is an important part of the funding activity. From the funding point of view, it offers diversification to a different investor base, gives NIB the opportunity to be active in the EUR market and helps explain the Bank’s environmental mandate to investors.
In April, a 7.5-year, EUR 500 million bond was sold to more than 50 investors. Close to half of the investors, many of whom are ESG investors, were new to NIB.
“The issue was a success, and it encourages us even more to go on with the green bond programme”, says Mr Hellerup.
The issues in British pounds—GBP 500 million maturing in 2023—and in New Zealand dollars—NZD 775 million maturing in 2023—helped further diversify the Bank’s funding sources. NIB has a long and well-established presence in the Kauri market, and the funding team was eager to use the opportunity to resume the activity.
In the Norwegian market, NIB raised NOK 3.75 billion in a number of transactions. One of them had a 20-year maturity.
“Since the Bank experiences good demand for loans in NOK, there is a need for funding in this currency”, says Mr Hellerup.
Finally, 38 smaller-sized private placement transactions for a total of EUR 1.8 billion were issued to cater for specific investor needs. There is still strong demand for instruments in emerging market currencies, such as TRY, MXN and HKD. Bonds in EUR and USD with structured coupons or call rights also offered funding opportunities in the first months of the year.
Mr Hellerup expects the funding activity to decrease somewhat in the second half of the year.
“2018 has been a good year so far, with most of our funding needs concentrated in the first half of the year. We still have plans for issuance in the USD benchmark format, but smaller transactions will be limited. At the same time, NIB’s funding needs are very dynamic, and we may still have to react to new situations”, he says.