IFC, the private sector arm of the World Bank group, has a modest funding requirement of just $2bn-$4bn a year, yet its profile is that of a much bigger borrower thanks to its highly successful global bond programme and its pioneering work in developing local currency markets. Jo Richards reports.
IFC's treasury team, led by Nina Shapiro, the institution's vice president of finance and treasurer, exhaustively sells its name to investors across the world, to publicise the IFC's global bond programme and thereby establish its credit to fulfill its mission of investment in the private sector and the development of local currency markets. IFC has $15bn in debt outstanding spread among 15 currencies, bringing to a total of 34 currencies in which IFC has issued since the mid-1980s.
In addition to a $1bn global bond, which IFC issues annually, usually in April, with a five year maturity, the institution has opened many domestic markets, including the issuance of the first renminbi denominated bond in China. Other landmark operations have included the opening of markets in Colombia, Morocco and Peru, while in Malaysia IFC spearheaded the first domestic Islamic bond by a supranational.
Other initiatives include offshore issues and hybrid/international issues in Russian roubles, Philippine pesos, South African rand, Slovak korunas, Polish zlotys, Czech korunas and Singapore dollars.
IFC's consistent and strategic approach to its dollar global programme has paid off handsomely. The once-a-year mandate is one of the most highly sought after by underwriters and is one of the most prized dollar bonds where investors are concerned.
"IFC has worked hard to build a consistent reputation for its globals, which are now highly valued by investors," says Shapiro.
"They know IFC will handle them carefully — that we won't re-open, that we have a bookbuilding process and that we distribute the bonds equally in Europe/Middle East, in Asia and in the US. Also IFC deals are heavily supported by a small syndicate of key relationship banks."
IFC's most recent issue, launched at the end of April, took the traditional format of a $1bn five year, which despite difficult market conditions, enjoyed "letter-perfect" execution.
"We were a little concerned about the market — the change in views towards the dollar market, the direction of interest rates and the fact that supra spreads have widened a bit from last year", says Shapiro. "One of the reasons the deal worked so well is that IFC has done successful transactions over the years with this consistent strategy. As a result, when the time came to do a deal in market conditions that were more difficult, investors responded positively."
Highlighting the popularity of the credit with the world's premier investors, 62% of the transaction was bought by central banks and 11% by official institutions. And unlike many recent dollar issues that have relied on the support of a handful of Asian central banks, IFC achieved a truly global distribution, with 35% sold to Asia, 35% to Europe, the Middle East and Africa, and 30% to North America.
"Over 50 buyers participated in the last global — none with outsized orders — which was a very good result," says Shapiro.
Consistency also pays off in getting the best possible price since this transaction was priced at 29bp over Treasuries making it the tightest deal to Treasuries in the five year sector for about five years. On a Libor basis, this equated to less 18.25bp, which was 1bp through IFC's curve, the first supranational, sovereign or agency issuer to achieve such a result this year.
But Shapiro says that IFC does not have sub-Libor targets for its global transactions. Pricing is based on investor demand, and it is this attitude that gives the IFC buyer appeal, that and the fact that its issues always perform well in the secondary market.
Bringing costs down is achieved in the structured market, which helps IFC hit its deep sub-Libor target for the overall programme.
Due to the success of its treasury activities, IFC's programme was just $2bn for fiscal year ending June 30 2006 and for the current year the institution's board has approved an expanded authority of $3bn to cope with its growing business.
But IFC's global programme is just one step to fulfilling the institution's wider mandate to develop local markets and in this sector of its activities, the big story of 2005 was to become the first foreign institution to launch an issue of renminbi denominated bonds in China's domestic capital markets. Called the Panda bond, the deal took IFC four years of work with regulators, banks and investors to bring the issue to market.
"China is an important market for us," says Shapiro. "We are just starting to look at structured finance there and would like to contribute to the development of the swap market.
"When IFC is the first foreigner to issue in domestic markets, our goal is to work with local investors, intermediaries and regulatory authorities to help develop bond markets so that a variety of other borrowers can follow at extended maturities. We try to introduce international practice in terms of transparency of information and credit differentiation, which are key."
IFC's structured finance and swaps business in local currencies is also expanding. In fiscal year 2006, around $1.5bn in local currency funding was mobilised through structured finance products where IFC offers enhancements and partial guarantees. In addition, close to $1bn of local currency swaps were intermediated for IFC clients.
On IFC's agenda this year is its second Panda bond and perhaps two dollar global issues. "If IFC's activities continue to expand, we could perhaps issue more than one global annually. Meanwhile we remain committed to issuing the $1bn five year," says Shapiro.