NRW Bank: An agency punching above its weight

  • 24 Sep 2004
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The borrower formerly known as Landesbank Nordrhein-Westfalen, German state development agency NRW Bank, launched its inaugural euro benchmark deal in June and with it established its new credentials in the debt capital markets. Duncan Kerr talks to one of Europe's newest borrowers about its funding plans.

In June this year NRW Bank, the new AA/Aa2/AAA rated zero risk weighted development bank for the German federal state of North Rhine-Westphalia, brought its inaugural Eu2bn five year benchmark bond to the debt capital markets and with it its new status as a European agency borrower.

The issue, which was priced at 98.915 with a spread of 16bp over the 3.25% April 2009 Bobl 144, was a swift turnaround for a bank that was only established on March 31 when it evolved into NRW Bank from Landesbank Nordrhein-Westfalen.

?The challenge was to bring the new story to the market by doing a large liquid issue,? says Frank Richter, head of investor relations at NRW Bank in Düsseldorf.

?A lot of investors had not recognised up until that point that the bank had shifted its legal status from being a Landesbank ? which would lose its state guarantee mechanism in the summer of next year ? into a state development bank that benefits from having a guarantee that is secure and will not be removed over time. Educating investors in that regard was the main challenge that we faced before doing the benchmark issue.?

The deal was launched off NRW Bank's new Eu20bn debt issuance programme, established in May through joint arrangers Citigroup and WestLB. Those banks and Dresdner Kleinwort Wassertstein were joint books on the oversubscribed June issue. By share, 56% of the bonds were sold to investors outside Germany, with 11% being sold outside Europe ? a strong distribution statistic for a new German borrower.

?The AA rating ensured demand and we managed to reach a wide investor base with very good regional and sectoral diversification,? says Richter. ?It has been a big challenge for us to bring this new information to the market, but we were successful in roadshowing throughout western Europe from early March right up until the beginning of July and the global CP programme helped establish us as a new brand in the market.?

NRW Bank moved quickly to establish its new credentials as a development bank when on April 21 it established its Eu8bn global CP programme through Morgan Stanley. The A1+/P-1 rated programme had Eu1.4bn outstanding from 19 tranches as of September 17.

New status
Its new status as a development bank means that NRW is one of the few banks in Germany that will retain the state guarantees of Anstaltslast and Gewährträgerhaftung after July 2005.

Changes imposed on the German banking system by the European Commission led to the re-organisation in 2002 of Westdeutsche Landesbank Girozentrale into two separate entities, WestLB and Landesbank Nordrhein-Westfalen (now NRW Bank).

Landesbank Nordrhein-Westfalen was set up to perform the same public service functions as Westdeutsche Landesbank Girozentrale did and WestLB is responsible for the commercial operations.

With total assets in excess of Eu100bn, NRW Bank is the third largest development bank in Europe, behind the two triple-A rated players, KfW and the European Investment Bank (EIB).

?We see ourselves more or less as a sub-Libor issuer and feel that we can improve on the 16bp spread over bunds that we achieved in June,? says Klaus Rupprath, head of capital markets at NRW Bank.  ?We take this view because we have the same credit quality as the State of Nordrhein-Westfalen and other federal states and we feel we can offer investors just as good or greater flexibility in deal structure, maturities and currencies. The EIB and KfW are names we consider to be our benchmarks, though we also think of Rentenbank and L-Bank in the same bracket.?

But for NRW Bank ? which has a funding requirement of around Eu20bn per year ? to be considered in the same bracket as the other prominent European agency borrowers it will have to establish a programme of regular, well priced, benchmark issuance in global dollars and euros while supplementing this with more aggressive and opportunistic trades in other currencies.

According to Rupprath, the June benchmark will form just 10% of the bank's intended financing this year, with other public and private deals to follow.

Eu20bn wanted
?We want to raise Eu20bn this year, about Eu15bn of which we have already done,? says Rupprath. ?Each year we will look to come with one dollar and two euro benchmarks and in the medium term the aim is to establish a euro and a dollar benchmark curve. Of our total yearly funding, a third will be done in benchmark form and two-thirds in structures and private placements.?

Richter says the treasury team can issue a range of structured products. ?We are in a position to offer 50 structured products,? he said. ?In the future we would hope to offer around 65 products.?

As well as building benchmark curves in dollars and euros, NRW also plans to issue across a range of other currencies, including Swiss francs, Scandinavian and eastern European currencies, Australian dollars and yen. All proceeds will be swapped into euros.

The dollar benchmark is a further focus for this year. Richter said the bank intends to market the debt issuance programme in Japan and southeast Asia, above all to gather dollar demand from central banks in the region.

?The next step for us is to go to eastern Europe in September and start roadshowing out there,? Richter said. ?And after that we will start a roadshow in Asia, perhaps in January or February of next year. We sold roughly 10% of the June issue into Asia where we have not made roadshows ? so that is a strong signal that Asia too also welcomes the new name.? 

  • 24 Sep 2004

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