A string of high profile issues this year has established Rabobank as a leading player in the European bond market. Brendan Freeman finds out what the borrower has next in its sights.
Since Rabobank's entry into the benchmark euro arena in 2003, the issuer has worked hard to establish itself as a competent liquid borrower. This has been most apparent this year where it has already launched more benchmarks than it did in the whole of 2005.
In January the issuer launched its first Eu1.75bn 10 year deal, which pays 3.37%. This was followed in March with a Eu1.5bn five year issue paying a 3.625% coupon. Then in June it issued its inaugural Eu1.25bn 15 year note, which carries a 4.375% coupon.
"[The deals] certainly raised a few eyebrows and people were impressed by them," says Michael Gower, head of funding for Rabobank in Utrecht. "It increased our profile, since it was an acknowledgement of our arrival and the fact that we are now an established part of the liquid market."
Gower concedes that even as recently as 18 months ago, a 15 year transaction of this size would have been inconceivable at these kinds of pricing levels for Rabobank. It simply did not have the required level of acceptance or recognition within the market.
"People have come to view us as a staple, liquid triple-A market figure," says Gower. "Investors now know the name, like the name and understand where we trade. We are now an accepted part of a liquid portfolio." Another area where the bank has been particularly innovative has been on the non-core currency front, with a number of benchmark issues in 2006.
"We are a huge proponent of niche currencies," says Gower. "We have done a lot of unusual trades — some are first time issues both for us and for the market."
In April, the bank issued its first Czech koruna EuroMTN, a Ckr400m (Eu14.1m) 20 year bond paying a 4.21% coupon, led by ING Bank.
In June, Rabobank pushed the boundaries of the market out further. It launched the first Israeli shekel public trade, a Ish150m (Eu25.9m) three year note through TD Securities, paying a 6% coupon.
The shekel has been settleable in UK clearing systems since 1991 but — until Rabo's public international transaction — had only been used for private placements.
Gower says that the non-core currency market has become an important component in the bank's strategy. "We like to be an innovator," he says, "so we are always looking to broaden our liquidity sources as much as possible. It is now a fundamental part of the funding programme."
Rabobank's balance sheet has grown steadily over the past few years. It now totals Eu500m, with Eu80m attributable to outstanding long term debt. There has also been a substantial shift in its composition. The balance sheet funding is now equally split between deposits from areas such as retail, and funds sourced from the capital markets.
"The retail deposit base has been growing at 2%-3% per annum versus the overall balance sheet that has been growing at 8%-9%," says Gower. "The difference in the middle has been funded by the capital markets.
"If you go back 10 years Rabobank was net cash positive. As the balance sheet continues to grow the reliance on the capital markets will grow in line with that."
Gower understands that if Rabo is to maintain the growth rates it has experienced over the last few years it will have to set its sights further afield. He believes US investors will play an important role in accomplishing this target.
"We have not tapped the American market much at all in comparison with the rest of the world," says Gower. "As our balance sheet grows and our funding requirements grow in line with that, it is fair to say in the medium to long term it is certainly a market we will look to explore."
Gower believes that increasing the bank's profile in the US will be the key to its progress. At present the bank is very much an unknown quantity in the US, particularly in the senior market. As a result, and despite its triple-A rating, the issuer will pay a pricing premium.
"It is the largest pool of liquidity in the world and we are fairly unknown there," says Gower. "It is going to take time and effort to educate the institutional investor base in the US and try to get them to feel comfortable with our name, our trading practices and how we perform."
"We need to let them know that we are a triple-A bank, a frequent borrower and are experienced in the capital markets. That's number one."
Gower says that the pattern of rising interest rates will also increase the importance of strengthening the bank's profile in the region.
"People have a lot more options than they did before," says Gower. "At the end of the day, it again comes down to name recognition and whether they are going to buy Rabobank as opposed to something that is better known, such as one of their home names.
"As liquidity elsewhere in the world reaches its limitations to the Rabobank name, it is important to be able to make sure we have liquidity available to us in the States," says Gower.