A brace of successful dollar benchmarks has done much to raise the standing of the now Aaa/AAA/AAA rated Instituto de Crédito Oficial this year. Meanwhile the government guaranteed agency has set its sights on new markets across the globe.
As if the upgrade of the Kingdom of Spain to triple-A by Standard & Poor's in December 2004 and its knock-on effects for government guaranteed Instituto de Crédito Oficial were not enough, the agency has enjoyed one of its most successful years in terms of issuance.
The latest in a long list of accomplishments was a $1bn five year Eurobond launched by ICO in mid-October. Barclays Capital, Deutsche Bank and HSBC went out with attractive guidance of the 30bp area over the five year Treasury, built a book of $1.25bn and priced the issue at 29bp over. With the dollar market encountering strong demand after a back-up in yields the issue was both well timed and well priced.
"A very nice trade," said one banker away from the leads. "The dollar market is in great shape and they were able to take advantage of that with the right approach to the market."
Meanwhile ICO itself was able to take positives away from the exercise. "On a dollar Libor basis this was equivalent to about less 17bp, which is 4bp inside where we launched our five year dollar benchmark last year," said a spokesperson for ICO. "That is a very good result for ICO."
A $1.25bn long three year benchmark in mid-April, led by Credit Suisse First Boston, Dresdner Kleinwort Wasserstein and Lehman Brothers was similarly successful for all involved.
"The name is better known, more people have lines for them and investors accept them as a real alternative to the Kingdom of Spain, which issues once every two years or so," said one syndicate member at the time of the deal. "The improvement is reflecting in their issue this week, which achieved good execution for the borrower of Libor less 19bp."
The benchmark was ICO's first since April 2004 and since the kingdom had received its third triple-A rating. "We have been funding ourselves quite successfully this year through private placements and structured transactions," Federico Ferrer, ICO's chief executive officer, told EuroWeek.
"However, we were aware that we needed to have a presence in the public market with benchmark transactions, even if they are less attractive from a financing point of view. So we were pleased to take advantage of the window that opened for us."
The extra triple-A rating also resulted in extra demand. "The fact is there seem to be plenty of institutions around the world that won't buy anything that is not rated triple-A by the three rating agencies and now that we fit into that category, demand for our paper has increased," said Ferrer. "We are also able to achieve more attractive funding levels."
This is particularly good news for ICO given that its funding requirements are expected to rise from around $6bn this year to more than $7bn in 2006, although the amount is yet to be finalised.
Future dollar benchmarks could see ICO join the growing trend of issuing in global format. "If we see a good opportunity then we could issue in global format in dollars," says Ferrer. "As of now we have plenty of demand from high quality investors in Asia and also across the continent in Europe, but we have substantially fewer in the US and that is something that we would like to address.
"We have become a large issuer so why should we eschew such a big concentration of investors?"
This year ICO has accessed a new pool of liquidity by entering the Kangaroo market. The agency signed a A$3bn Kangaroo programme in May and in the first half of the year 15% of its funding came from the Australian dollar market, although not all of it from the foreign market.
The agency launched its debut in mid-June, a A$300m June 2008 issue via Royal Bank of Canada and encountered such strong demand that the size was doubled to A$600m. This deal was followed up by a A$400m seven year issue in October, again led by RBC, making ICO the third biggest issuer in the market this year.
"We thought that this would be a good market, but for small amounts," says Ferrer. "However, it has exceeded our expectations and it is a very good funding market for even large amounts.
"We have also achieved very good funding levels, on a par with or even tighter than some of our peers."
One of ICO's next goals is to become more active in the thriving Latin American currency markets. "We are monitoring some of these currencies as we would like to issue in them," says Ferrer. "We have made a couple of derivative transactions in Chilean pesos already this year as we have some clients borrowing in Chile.
"We have not issued yet, but if at all possible we will do so in the future."