Willing wallflower

IFR Top 250 2014
7 min read

Export Development Canada’s AAA status is given a boost by the fact that it is Canadian. This has allowed it to look at Green bonds and domestic currency debt.

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There are advantages to Triple A status, even if it sometimes means that you are left in the corner at parties. Susan Love, deputy treasurer at Export Development Canada, speaks of attending an international conference several years ago and being taken aback at first that delegates appeared to show no interest in talking to her. They kept running off to talk to Greece.

“We have many more questions for them,” they said to her when she questioned them.

That same sense of stability, reliability and conscience has been seen in EDC’s debt issuance this year. It is looking to borrow around US$11bn in the capital markets in 2014, though it might end up being a little bit higher. At the end of May EDC had already raised US$6.6bn and was, as Love said: “a little ahead of schedule”.

EDC showed what it intended to do in early January with its first Green bond issue. It sold US$300m of 0.875% global Green bonds maturing in January 2017 through JP Morgan and SEB. What was noteworthy about the paper was the demand, which showed that it is hardly a niche product.

Orders topped more than US$500m and in the end went to 27 CSR-conscious investors, such as Andra AP-fonden, Tredje AP-fonden, Calvert Investment Management, CalSTRS, Praxis Intermediate Income Fund, Rockefeller & Co, TIAA-CREF Asset Management and Trillium Asset Management.

“EDC’s Green bond programme is an area where the interests of investors and EDC converge, one that we’re looking to develop and grow into a regular part of our funding programme,” said Ken Kember, EDC’s chief financial officer.

Love explained that the thinking behind the bond was to show commitment to the clean tech sector. “We wanted to get our feet wet and we have made a commitment to investors to print at least one Green bond a year,” she said, pointing out that global revenues for the sector were expected to reach US$3trn by 2020.

Rarity drives demand

In the traditional market, EDC has sold only one US dollar benchmark so far – though Love said that EDC might consider three in total before the end of December – a US$1bn 1% May 2017 at 3bp through mid-swaps at the end of March, making it the tightest three-year SSA issue this year. Rarity drove investor demand, which is why books reached US$1.4bn and the majority of the paper was lapped up by central banks.

This followed two deals in the US dollar market last year – a US$1bn 0.625% three-year at mid-swaps minus 4bp in November and a US$1bn 1.5% five-year at the end of September that was priced at mid-swaps plus 2bp.

Where EDC has been more active so far this year has been in Australia. At the moment, it stands in 12th place on the Kangaroo issuer table, with A$3.9bn outstanding. At the end of May it sold A$400m of new 3.5% June 2019s at equivalent govvies plus 41.25bp. So successful has its fundraising been in Australia, with consistent demand, that EDC’s shortest-dated outstanding Kangaroo doesn’t mature until August next year.

What drives many European issuers to issue Kangaroos is the swap. That from Australian dollars to euros in particular has been generally favourable, allowing issuers to sell paper with a pick-up over Australian government bonds and flat swap back to euros. While there is some of that dynamic with US dollars, it has not been the prime motivator for EDC.

“We have an ongoing commitment to the Kangaroo market,” said Love. “The swap doesn’t have to be working for us to issue.”

Looking beyond tradition

The other currency that EDC traditionally supports is sterling and providing investor demand is there, EDC plans to issue in the currency this year.

“We’ll examine how it swaps back to floating US dollars and decide whether to swap or leave the funds in sterling to offset assets,” said Love. EDC last sold a sterling bond issue in July last year – £350m of 0.875% three-years at Gilts plus 27bps. This followed a £400m three-year sold in January 2012 at Gilts plus 57bp.

Although these are traditional currencies, what has been of particular interest about EDC issuance, and will be in the future, is its commitment to non-core currencies. EDC’s most recent figures show that Canadian exports grew by an estimated 3.2% in 2013, and more than 7,100 Canadian exporters and investors used EDC’s products and services to undertake US$95.4bn in international business. This was a 9% increase over 2012.

But the more significant figure to look at is that EDC facilitated US$27.3bn of Canadian exporter and investor business in 145 emerging markets in 2013, some 4% higher than the previous year and accounting for 29% of EDC’s total business

To this end, Love speaks of the recently launched up to Ps3bn (US$230m) Mexican commercial paper programme. EDC’s presence in the country is long-standing; indeed it boasts two permanent representative offices in Mexico City and Monterrey.

“The short-term borrowing programme started in March and is fully operational. We are in the planning stages for a long-term borrowing programme in pesos as well,” Love said. Work is still to be done to understand the market properly and to work out how to set up pricings and ratings, but it too is expected to be up and running by the end of the year.

EDC’s debt issuance over the past year has appeared effortless. Deals are executed simply and quickly, and with little of the hoopla sometimes seen by other SSA issuers. Love put her finger on why EDC’s relationship with the capital markets seemed so straightforward – the AAA rating was given an additional boost by its nationality

“It is not just that EDC is regarded as a sovereign issuer, but that it is a Canadian sovereign,” said Love.