Most of annual funding done by summer

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.

“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.