Sylvie Vade, chief executive officer
What were your main goals a year ago and do you think you have achieved them?
Our aims were to raise outstandings of Eu8bn-Eu10bn, to keep on building our yield curves in euros and dollars and to diversify our investor base. And we have gone a long way in doing this. We have raised more than Eu6bn, through three euro jumbos with benchmarks of five, 10 and 15 years, and two five and seven year US benchmarks. Another focus was to increase diversification in terms of markets, currencies and structures, and as such our private placement activity has been strongly developed - our volumes in this market are six times greater than in 2001. Maintaining a permanent dialogue with investors is one of our strong priorities and our regular one-on-one meetings throughout Europe, in Germany, UK, Scandinavia, Spain and Italy, has kept us on target.
What advantages does the French market have over other covered bond markets? Have you benefited from the problems in Germany?
The French market's advantage lies in its strong legal framework. There is total security for investors. They benefit from strict guarantees and controls in terms of interest rate risk and liquidity. And these strengths are now widely recognised by the investment community. The difficulties in the German market reinforce the need for transparency, which has been a policy of DexMA's since its creation. Simply stated, the French market has become a quality label.
What are you doing to remain innovative and keep ahead of your competitors ?
To remain innovative is crucial, so we are in constant touch with our dealers. We must be ahead of market demand in terms of products and currencies, and we have created the adequate internal conditions to do this. Reactivity and flexibility are key, particularly in the difficult and volatile market environment we are faced with. We have changed our communication policy so that we now meet investors one-on-one in a non-deal environment. But the key challenge is to remain a top quality issuer able to provide investors with unquestionable credit quality.
How do you think the French market will develop over the next year?
Since its creation the French market has grown rapidly and has established credibility. Benchmark issues have been created and the size of the market is now significant. Moreover, French distribution has clearly widened from a domestic to an international investor base. As far as we are concerned our aim is to keep on differentiating ourselves. And thanks to the nature of our assets and our parent company's business strategy, which is more and more important for the evaluation of our credit, we can do this. Our business model is clear and our role is well defined: to refinance activity originated by the Dexia Group in the public sector market.
The covered bond market is a dynamic sector? What is the next step?
The covered bond market has faced many changes such as the creation of new markets with different legal frameworks. But the next step may be to move from an asset class perceived as homogeneous to real market segmentation in terms of credit quality. The movement has already started, but we have to be careful to avoid confusion among investors.
How much of your funding comes from the private MTN market? Has this market become more important?
Since its creation DexMa's priority has been to promote its name by issuing in the public market and building benchmark curves. But, since the beginning of 2002, we have started to actively develop our private placement activity. We have issued about 15 structured transactions, which represents almost 12% of our funding.
These tailor made products allow us to satisfy investor demand.
You have issued in New Zealand dollars. Are you conscious of diversifying your investor base and are there other currencies that you will look at in future?
Our five year New Zealand dollar issue was a first and was a real opportunity for us to diversify our funding sources. Our Kangaroo programme was set up in 2001 and is further evidence that diversification is not just a buzz word, but an active part of our funding strategy. This diversification is definitely something we will continue.
You have not tapped the market in yen this year - are you not seeing much enquiry from Japanese investors?
The yen market has been very active, but investors are focusing mainly on very short term products. This does not fit with our funding needs. We have to match long term assets with long term issues. But we never stop looking at this market because investor attitudes may change. Our signature is well perceived in Asia, including Japan. The Asian investment community and particularly some Asian central banks and Japanese institutional investors are regular buyers of our Eurodollar benchmarks.
Has the internet or on-line trading platforms had an effect on your funding?
The liquidity of our issues is key and it is clear that electronic trading platforms help facilitate this. Despite the change in rules of Euro-Credit MTS our two eligible benchmarks remain quoted on this platform. We are convinced that B to C electronic platforms, by improving flows between market makers and final customers, have a real effect on funding.
What effect has market volatility had on your business?
Downgrades and defaults have plagued the first half of this year and this has forced investors to reassess what credits they buy from covered bonds issuers. As a triple-A issuer, DexMA, has to some extent benefited from this flight to quality. We are considered a safe haven during the current turmoil. But beyond volume, it needs to be underlined that despite a difficult market our credit quality has enabled us to be one of those rare issuers able to raise long term funding.
What do you think of the Luxembourg market as an alternative to the French and German markets?
The Luxembourg Act, concerning banks issuing mortgage bonds, took effect on November 1, 1997. The market is composed of three players, which have volumes of just Eu4.75bn from five issues. The weak development of this market is due to the strategy led by its German parent companies.
The parent companies have to restructure and the future of this market will depend, not just on that, but also on potential new entrants.