Stephen Abrahams, chief, capital markets division
How has the past year been?
Actually this year has been quite good for us. Our spreads have continued to tighten. We have been doing fairly well on a sub-Libor basis.
Have you had any problems with the markets becoming more difficult for you to issue at the right levels?
I have not noticed anything being more difficult. The markets have been there. It has been a little difficult to get deep sub-Libor results, particularly on our local deals, but we have been able to keep doing that on our arbitrage-driven transactions - in fact, it has got easier over the last couple of weeks. What has been driving the market, driving the swap curves, has been the interest rate environment.
You tend to stick to the fairly short end of the curve - why is that?
If you go back and look at the targets of the bank two or three years ago, you'll see that they tended to be of much longer maturity. Since the implementation of our short term discount note programme at the end of 1998 and through 1999, they tend to be of much shorter maturity.
We still need to fund some of those that are being paid back, and we will need to find shorter term funding for some of that. That is why you will see that we have done some shorter maturities recently.
You also tend to be fairly opportunistic. What are the factors you look at in your borrowing? How important are Libor levels, for example?
Libor levels play a role, and that is fairly important, particularly in the markets we look at for strategic arbitrage-driven transactions. For US globals, we obviously look at sub-Libor levels, but more important for us is the ability to price at reasonable levels compared with other markets in which we can issue and in maturities we want.
The two year increase you did in October of last year was turned around very fast, based on a change in the pricing of the US agencies. Are you dependent on agency spreads?
When we are looking at pricing an issue, we do look at agencies, and I know that some people in the market are trying to price us off agencies.
Why, given that you are a supranational, do you trade with agencies?
The market certainly sees supras and agencies as very similar. I think that the same types of investors are looking at agency paper as those looking at supranationals. In a lot of houses, agency and supra paper is traded off the same desk, by the same traders. So there is a lot of similarity between them, as is natural. However, you cannot disregard the fact that the agency market, given its size, has become a kind of a benchmark.
When there were problems last year with the agency market related to political discussions, did that affect your prices?
It improved our pricing for a short space of time. At that time our spreads versus agencies were very favourable, and we are now essentially flat to agency paper.
How important is the subscribed callable capital level in managing your balance sheet?
The subscribed callable capital of the non-borrowing countries is essentially 50% of our total callable capital. That has not placed any sort of limitation on our flexibility to borrow.
The size of our borrowing programme is determined by relatively complex internal policies relating to the total liquidity that we can carry at any given time, and that level fluctuates according to our disbursements. That is a fairly indeterminate number in our calculations, so we have to monitor outstanding liquidity levels to make sure that we maintain the range of liquidity set by our board of directors. It is a rather complex calculation that gives us a range of numbers.
Is that subject to change at fairly short notice?
Yes, it does change at quite short notice. There are certain elements that we know, such as the level of redemptions and the influx of debt servicing on our loans. The level of disbursements is more variable and at some times we can have a request for funds at very short notice, and that can be for substantial sums of money - but that is not really relevant to our borrowing.
How far ahead do you look in planning issuance?
We are probably more focused on the near term, with some speculation about the medium term, and how the capital markets are developing. We look at individual markets, and some offer us better arbitrage opportunities than others, and we look at how that is developing.
Do you have to spend a lot of time talking to investors?
Let me put it this way: I do not know that we have to, but we do. Given the fact that a lot of other large and very important issuers are in fact speaking to investors, and that we are in a way competing for investors, we devote a lot of resources in terms of time and energy to going out and talking to investors.
What are investors concerned about when you talk to them? Secondary market performance?
Secondary market performance, certainly. We keep a very close watch on where our bonds trade. We tend to work with a fairly small group of underwriters - not much more than 15. We have the closest relationships with those houses. They trade our bonds and we monitor where our securities are trading on a daily basis.
There is also a lot of interest in the size of our programme: how much paper we are planning to issue; the markets that we are interested in; the type of paper; and the timing of our issuance. There are a whole lot of things that investors are interested in.
I think there continues to be a number of investors that do not know the institution that well. Even though they have been buying the paper because it is triple-A rated, and they are buying in that market, they really do not know the institution. Some of them have found it hard to understand why we have a triple-A rating, and I think it is important to get out there and talk to them, and to keep our name in the market.
Do you foresee any major challenges for the year ahead?
For us, I think things will continue to be quite smooth, for the most part. The bank does not face any major challenges. I think that our member countries are a lot more likely to face challenges, or already face challenges, like Argentina.
Does that affect you at all?
It has not affected us, and it should not affect us, of course. First of all, the bank is in an extremely strong financial position. Our debt servicing is up to date. Through all the problems that countries such as Argentina have been having, they continue to service their debt with the bank. There is no danger or threat of the bank getting into a situation where it is not receiving income on its loans.
In the past there have been occasions when countries have got behind on their payments for various reasons, but currently that is not the case. In the entire history of the bank we have never had a problem with any of our loans. The institution is really not dependent on the credits of countries we lend to.
If you look at where our spreads have been compared to the spreads of those countries that we lend to, there has not been a correlation. *