Bank Nederlandse Gemeenten is the Dutch bank of and for the local authorities. Half of its share capital is controlled by the Dutch state, while the other half is owned by the local authorities and provinces of the Netherlands.
BNG is the principal agency for the Dutch public sector. Its clients include local authorities and provinces as well as institutions linked or related to the authorities in the sectors of public utility, environment, national housing, national health and education.
With no credit exposure outside the public sector, and 85% of total assets carry a 0% risk weighting the bank's assets are of exceptional quality. BNG is the largest borrower in the Netherlands after the state itself and has an excellent reputation in the international capital markets, where it has been a regular issuer for a number of years.
Since the beginning of 1999 BNG has tapped a variety of markets raising approximately Eu4.4bn equivalent out of a borrowing requirement of Eu10bn for 1999.
The bank's borrowing strategy includes the regular issuance of benchmark notes in euros, dollars and sterling. Benchmark issuance is an important part of the bank's funding strategy and it expects to launch three to four benchmark issues per year.
This year it has launched a Eu500m 15 year transaction, increased its 3.75% of 2004 deal launched last July to Eu900m through two increases of Eu200m and reopened its most recent 10 year deal, the 4.25% of 2008 launched in December of last year, to a new size of Eu1.5bn.
Since the increase, the deal has maintained its trading level of 28bp over the 10 year Bund, a level roughly in line with 10 year benchmark issuance from KfW and the EIB. BNG's yield curve in euros now stretches from five years to 15 years and the bank is currently looking at the possibility of launching a benchmark deal in the seven year part of the curve. Benchmark issuance in dollars this year has included a Eu750m five year transaction in January which was recently increased to Eu1bn and a $500m 10 year deal launched in April.
"Given that the Dutch state limits its issuance to euro denominated debt, BNG will fill that supply gap in other major currencies," explains Anne Rüsing, senior manager of international capital markets at BNG.
And the growing scarcity of Dutch state issuance in the markets should also push more investors towards BNG debt, she says. "As genuine Dutch state risk is relatively scarce and may not fit every investor's asset allocation, BNG fills a supply gap by acting as the Dutch public sector agency."
Historically all of BNG's funding was domestic. Since 1992 the bank has broadened its funding sources, seeking to penetrate new markets and reach a wider audience of investors. In addition to roadshows and one-on-one meetings the bank also carries out yearly visits to core financial centres and bi-annually to smaller centres.
Over the years it has established a strong franchise with retail and institutional investors. "Since we first accessed the international capital markets in the early 1990s, we have had a strong and loyal retail following - and that spells Benelux plus Switzerland," explains Rüsing.
"BNG's excellent risk profile, combined with our ability to issue longer dated debt, have significantly contributed to our attractiveness for UK and continental pension funds and insurance companies, as well as Japanese life insurance companies. We have also developed a good following in Asia."
The agency is keen to tap new markets and take advantage of opportunities offered by the new currency sectors in the Euromarket. In the past year BNG has debuted in the Swedish krona, Greek drachma, Hong Kong dollar and Australian dollar markets. This year, one of BNG's goals is to enter the German Schuldschein market.
Aiding issuance flexibility is a full range of borrowing facilities including a Dfl 30bn domestic MTN programme, a Eu5bn debt issuance programme and a Eu5bn Euro-CP facility. These allow the bank to tap into specific investor demand with tailor-made transactions. Although the Asian crisis has had an impact on MTN issuance in the Japanese market, the bank still expects to finance some 10% of its annual funding needs through private placements. EB