Natexis Banque, the result of the merger last year between Banque Française du Commerce Extérieur and Crédit National, is about to embark on a multi-currency funding programme aimed at establishing its name and credit with international bond investors. First, however, it needs to complete the reorganisation of its capital base and prepare the ground for its first debt issues without a state guarantee.
The merger last summer of Banque Française du Commerce Extérieur
and Crédit National robbed the Euromarkets of two of the most
frequent issuers from France and a pair of names that were highly
regarded by investors.
The good news for bankers and investors alike is that the new entity, Natexis Banque, will return to the international markets in force later this year with plans to borrow the equivalent of Ffr6bn.
By then, the bank's future should be clearer and its capital base stronger. That process began last October when Caisse Centrale des Banques Populaires, a mutual bank, took a 23.5% stake in holding company Natexis SA - leading Moody's in January to return Natexis' rating to A2, having downgraded it to A3 soon after the merger.
The US agency put the rating on watch for another upgrade at the end of March after Caisse Centrale launched a friendly bid to take control.
The results of its tender will be announced in early June and will be followed by a $250m of fixed rate preferred stock to be issued under rule 144A by Natexis' US unit.
In September, Natexis plans to raise Ffr500m to Ffr600m through a capital increase. The bank's BIS ratio fell from 9.3% to 8.5% in 1997, but the recapitalisation should lift the ratio back to around 9%.
Natexis may even strengthen its capital ratios further towards the end of this year with an issue of dated subordinated debt in the Euromarkets.
"Because of the merger and the downgrading, we have gone back to our French base, where everybody knows us and our rating matters less," says Olivier Schatz, chief financial officer.
"We were very reluctant to give any reference benchmark to the international market while we could not give out average figures and there might still be some unanswered questions about the bank. But that was a short term tactic not a long term strategy. In the long run we have to be present in the international markets."
Much of its borrowing this year has been on the interbank market, although Natexis has a Ffr30bn domestic CD programme, of which about Ffr18bn is outstanding, and outstandings of about Ffr16bn on its BMTN programme.
It also has a $2.5bn Euro-MTN programme, for which outstandings are about $1.3bn, and from which it has borrowed sparingly over the past 12 months - mainly to refinance maturing debt.
Since the merger, Natexis Banque has tapped the international bond markets only once. In October it launched a $500m three year issue via joint books Tokyo-Mitsubishi International, Dresdner Kleinwort Benson and Merrill Lynch.
However, this deal was guaranteed by the Republic of France and therefore did not represent a true debut for the bank. The proceeds refinanced export credits - a type of business that BFCE carried out for the French treasury for years before the merger.
Even though the deal was launched at 14bp over Treasuries, 5bp wider than the lowest spread offered to the borrower, it was greeted coolly by some investors and bankers at a time when Eurobond spreads were widening and many investors were seeking safety in the US Treasury market.
"It is fair to say that it was not the best time to do a deal," says Jacques Omeyer, the Natexis treasury official responsible for government guaranteed borrowings.
"But you never know what the market is going to look like tomorrow."
He says the joint bookrunners did a good job in difficult circumstances and that the deal tracked other similar credits - widening in line with a five year deal for the European Investment Bank, for instance.
The transaction was swapped into floating rate French francs and Omeyer says that, post Emu, most government guaranteed issues will be swapped into floating rate euros; there will probably not be a government guaranteed deal from Natexis in 1998.
Whereas the execution of the issue in October 1997 was delayed because some investors did not know the name - and had to arrange new lines even though there was a guarantee from the French state - Natexis Banque will be arranging a series of presentations before it launches the first issue of non state guaranteed debt in its own name.
Schatz expects two deals later this year, one in US dollars and one in a European currency, probably Deutschmarks, totalling around Ffr6bn.
There are several reasons why Natexis is likely to issue in Deutschmarks, even though most of its European loan book is in French francs.
"We have already tapped the French market on a broad basis through CDs, BMTNs as well as through our heavy use of the interbank market. We also feel that we have to prepare for European monetary union."
Issuing in Deutschmarks, it feels, enables it to tap a large portion of what will constitute the investor base for euro denominated debt.
Compared to the past, Natexis has a growing need for dollar borrowing funding as its international lending is expanding fast. Moreover, its desired maturity will be much shorter than in the past.
Whereas Crédit National frequently raised funds at between eight and 10 years, Natexis will probably be issuing in European currencies at five years or less.
"The balance sheet of BFCE was quite a bit shorter than Crédit National's," Schatz explains. EW