Austrian borrowers have wasted no time in exploring new cross-border opportunities. Since July last year six of them have decided to sign programmes, with Hypo Alpe-Adria Bank and Vorarlberger Landes- und Hypothekenbank being the most recent of these. But perhaps the one that stands out most is Osterreichische Kommunalkredit Bank (OKK). OKK signed its euro1 billion ($1.07 billion) programme in November last year and already has $251 million outstanding off four euro-denominated deals. It was set up to further diversify OKK's funding base beyond that of its traditional investors in Austria and southern Germany. Martha Oberndorfer, vice-president and head of treasury at OKK, is pleased that so far its euro-friendly signal has been well received by investors. She says: "We have reached new investors in the UK and the continent." Programme arranger, Deutsche Bank in Frankfurt, has confidence that OKK will continue to attract more foreign buyers. Adolf Bothe, head of origination at Deutsche Bank, says: "We have made presentations to investors in London, Brussels and Paris and in the future we expect more interest in OKK from Benelux countries." Oberndorfer, at OKK, states that the programme is intended to satisfy core-funding needs and that 75total funding will come off the facility this year. However, opportunistic funding is still an option for OKK. The funding target for 1999 is between euro500 and euro600 million. OKK went further than most borrowers in investigating the best way to set up its programme. It finally chose German law for the legal framework. Oberndorfer, at OKK, explains: "We spoke to several borrowers which administered under different laws. They generally admitted that investors show little preference. However, as well as the increased paperwork and costs involved in UK law, there are not many strong arguments to choosing case law when you are based within the continental framework of codified law." She also suggests that more swap counterparties are now comfortable with German law. She says: "When two continental counterparties do transactions together, more of them find it makes sense to choose the continental legal framework where both parties reside." OKK is a private bank. Its core business is the provision of finance for infrastructural and environmental protection projects, like water supply and waste water management, and the clearing of contaminated sites by local authorities in Austria. Funds also support OKK's international consultancy services. Projects have been handled for Republic of Austria, the EU and the World Bank. For example, OKK has played an important role funding government aid to Bosnia-Herzegovina. Increasing numbers of asset managers have green funds or goals of eco-efficiency. Oberndorfer is proud to present them with her business cards made from recycled paper. She says: "There is a scarcity of this type of investment. OKK is a rare European issuer of good quality environmental bonds." Due to the nature of its long-term projects, OKK is looking to attract longer-term investment and will probably not make issues of less than three years. OKK has a strong long-term credit rating of Aa3 from Moody's and hasn't been exposed to problem areas like Russia and South America. One third of its sources of income is not sensitive to the yield curve. Oberndorfer says: "We have a strong balance sheet and we do not have the problems of running a huge chain of banks." Reinhard Platzer, chief executive officer at OKK, formerly worked in the treasury. This is of great advantage to the funding team since Platzer can give quick and well informed approval on transactions at board level. Bothe, of Deutsche Bank, says of OKK: "Response times are fast depending on the final rate. If the rate is attractive we can expect a turn-around almost straight away." Flexibility and transparency is very important to OKK. It insists that dealers fully explain its risks to investors. The funding team at OKK is even willing to discuss the credit individually with investors. Although the borrower is pleased with its 10 named dealers, it keeps its options open with a reverse enquiry clause. OKK is a pro-active issuer, keeping a close eye on trades in the secondary market. However, as far as buy-backs are concerned Oberndorfer says: "It is the role of lead-managers to buy back our paper." The primary concern of OKK is to meet individual investor needs and ensure the buyer is aware of any risks involved in a particular deal. It is open to a wide range of structures but credit-linked notes remain uncharted ground. Oberndorfer says: "We prefer to observe progress in this area from a wait-and-see position. A stronger legal framework is required before this product can be marketed successfully. As a responsible issuer OKK does not want to risk its reputation by exposing itself within this area." Marketing and communication are key to the funding strategy. This includes changing its Bloomberg tikker from OST to OKK for quick and simple identification. Oberndorfer says: "We do not know every holder of our paper so we have to ensure that clients can find our name and access our information as easily as possible."
July 28, 2000
