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The Champion - Royal Bank of Canada

20 Jun 2006

RBC goes distance in cores

Its Aussie dollar strategy has helped RBC to dominate the alternative dollar sector's newest market. Matt Attwood reports.

The Royal Bank of Canada has used tried and tested methods to top the tables and clinch the champion slot for non-core currency Eurobond bookrunning in this year's Celebration of Excellence. Throughout 2005, the bank retained its dominance across non-US dollar markets, with a particularly strong performance in Canadian dollars. RBC has driven the nascent Maple bond market, using expertise gleaned from the rise of the Australian dollar market.

Insiders at the bank liken the Maple sector to the Australian market. Both were small retail markets concentrating on European investors that have changed direction and become international, attracting the world's largest institutional investors.

While other big names in Canadian dollars reacted to last year's legislative changes, RBC's involvement in the Maple market predates the relaxation of the foreign property rule (FPR), says Géraud de Nadaillac, head of new issues in London.

"We recognised in 2004 that the rule's 30% cap on foreign holdings did not apply to all investors: pension funds were affected, but insurance companies were not.

"At the time, the basis swap between US dollar Libor and BAs was in double digits, which meant we could bring a top quality name like the EIB at a higher yield than double-A Canadian credits."

RBC's experience with deals such as last July's A$850m five year bond for Network Rail is aiding its strategic approach in the Maple segment. That trade was issued after RBC advised the borrower that Australian dollars offered competitive sub-Libor funding and access to a new investor base, which is also true of the Canadian market.

"With quality, diversification and generous levels all on offer, we had to educate investors about foreign borrowers, and to that end held a first conference in Canada in February last year," says de Nadaillac.

"Shortly after, the FPR's demise was announced, which made things move quickly, but even before that announcement, we were driving big changes in the Canadian dollar sector."

A highlight for de Nadaillac is the C$400m 10 year trade for Instituto de Crédito Oficial (ICO), brought in March this year. It was ICO's second Maple deal, and only the second foreign-content trade to be priced flat to or through the Province of Ontario benchmark.

This landmark pricing aside, the oversubscribed book (the deal was increased from C$300m), was a vindication of RBC's policy to educate Canadian investors about European issuers: 80% of the paper went to the domestic market.

The market's natural evolution brings new obstacles and opportunities, says de Nadaillac. "The basis swap reduced as the market developed, making it harder to bring top quality names. Our challenge is to manage the shift to higher yielding credits, which is where demand is concentrated."

"Our other challenge is to not become the victims of our own success. RBC and TD Securities dominated the Maple market at its inception, but Canadian and US banks are becoming much more aggressive as they see the opportunities in this major new market."

De Nadaillac and his colleagues successfully negotiated the Maple market's transition from a small byway of the European retail network to an important market in its own right. In an increasingly crowded sector, they will need to call on their ability to innovate again.

Key staff: Géraud de Nadaillac (MD and head of new issues, London), Adrian Bell (chairman, London), Paul Johnson (head of sterling/dollar syndicate, London), Richard van Nest (MD of global financial products and debt syndication, Toronto)

Key deals (2006): Network Rail 5.50% 2010 A$850m; ICO 4.53% 2016 C$400m

League table positions (2001-05):  3, 2, 2, 1, 1

20 Jun 2006