Saturday, 22 September 2018

Establishing a blueprint

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The World Bank is a steady, reliable issuer, present in a range of currencies. But this year it has generated more headlines than usual, as the financial crisis has wrought havoc on global economies. It has also been pioneering in green issuance, demonstrating its unfaltering willingness to innovate. Michael Winfield reports.

The World Bank recently completed its US$25bn-$30bn borrowing programme for the fiscal year which finishes at the end of June. The issuer always completes a relatively small but significant number of capital market deals. But the Triple A-rated name has seen a sharp rise in its profile recently, as well as the first increase in its capital structure for over 20 years in May 2010.

The World Bank’s current financing requirement is much greater than in the years leading up to the financial crisis of 2007. The International Bank for Reconstruction and Development, the part of the World Bank most frequently seen in the market, has therefore had to adopt a more frequent public issuance profile. After being a regular issuer in US dollars and the instigator of the Global platform for bond issuance in 1989, the institution has increasingly sought to extend its reach in the major currency sectors. Simultaneously, it remains at the forefront of both currency and product innovation.

The World Bank sold its first 10-year euro-denominated issue in May last year, a €3bn deal which was priced at 43bp over mid-swaps. This was the second time the IBRD had raised euro-denominated funding, having sold an inaugural three-year issue in 2007. “The opportunity to successfully issue in this part of the curve enabled us to upsize the deal to match our funding needs in euros, which have grown in response to the greater requirements of the Eastern European economies,” said George Richardson, head of capital markets at the time.

Issuance in US dollars remains the option of choice for many issuers. The economics of swapping the proceeds back into euros has been significantly more cost effective for several years, following the basis swap dislocation resulting from the financial crisis. In 2010 the issuer sold two benchmark deals: in late April the World Bank priced a US$3.5bn 1.75% June 2013 deal, in line with guidance of the mid-swaps less 3bp area; more recently it sold a five-year US dollar Global deal, priced at mid-swaps plus 5bp. The latter, US$4.5bn 2.375% May 2015 transaction attracted a final book of around US$5.6bn made up of over 140 accounts.

In common with its timing on previous occasions, the IBRD was mindful of the ability it has to help restore confidence in markets which have been through a period of uncertainty. The timing of the issue, which came in May, coincided with the rescue of Greece and the introduction of the ECB’s measures to prevent further peripheral sovereign weakness.

“The success of this transaction restored confidence to the SSA sector after a very volatile period,” said PJ Bye, head of SSA syndicate at HSBC. “The World Bank was the best name to do this and the depth and breadth of demand opened the way for other issuers to access the liquidity that is clearly available for top quality credits.”

The IBRD also maintains an active programme of issuance in non-core currency markets which offer attractive financing terms and further its investor reach. At the beginning of the year it matched the size of the largest-ever supranational issue in the Kangaroo market, pricing a A$1.5bn (US$1.32bn) 5.75% February 2015 fixed-rate deal.

The World Bank’s green issuance programme is designed to bring together the public and private sectors. It aims to raise funds for projects seeking to mitigate the rise in greenhouse gas emissions or to help people in developing countries affected by climate change. The first such issue was sold in 2008, a SKr2.325bn (US$298m at the time) November 2014 deal. Late in 2009 The World Bank sold a US$130m 2% four-year green bond through sole lead manager SEB, its third such issue, to support projects in client countries that meet specific criteria for low-carbon development.

The World Bank also completed a green bond targeting Japanese investors at the beginning of this year. The NZ$150m (US$110.7m) five-year 5.23% Uridashi was its fourth green issue, although the first targeted specifically at Japan.

“Tackling climate change will take immense resources that will only come from a well-orchestrated flow of public and private finance. World Bank green bonds are an important early effort to show one way in which this can be done. We appreciate the support from Japanese investors as it demonstrates that private citizens can safely and profitably invest their savings today while also helping provide a better world for their children,” said Robert Zoellick, president of the World Bank, in a statement.

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