|
World Bank to pioneer supra Kauri retail deal |
On June 18 World Bank (AAA/Aaa) announced it is selling a four-year retail bond in New Zealand, via Westpac Institutional Bank (Westpac) – the first deal from a supranational issuer to be offered predominantly for retail participation in the country.
The offering will open for retail investors on June 23 and close three weeks later, on July 11. The vanilla bond will be marketed at a margin below swap with the rate to be set on July 14, two days before the settlement date. After that the notes will be fixed rate, paying a semi-annual coupon and maturing on July 16 2012.
Before the retail opening the bonds will be marketed to institutions in the range of 34 to 36 basis points through the four-year mid-swap rate. According to Andrea Dore, senior financial officer at World Bank in Washington, the bond has been designed to appeal to retail investors but Westpac will also explore demand for the deal from institutional investors who are interested in making it available to their clients via their funds. “As a result,” says Dore, “we will also be applying for repo-eligible status for the bonds from the Reserve Bank of New Zealand.”
“Clearly the deal is focused primarily at retail investors but we do expect some institutional involvement,” says Simon Ling, Sydney-based executive director, debt securities and syndicate at Westpac. “We started three days of institutional book-build today and during this the deal will be widely offered domestically and offshore. The issue should benefit from the fact it is free from non-resident withholding tax and can settle through Euroclear and Clearstream.”
In order to make a retail offering in New Zealand an issuer must usually file a prospectus – a procedure which most offshore borrowers regard as too time-consuming and expensive to be worth the payoff. But Ling confirms World Bank has obtained an exemption from New Zealand’s Securities Commission to only file an investment statement.
It is also understood that this exemption is only likely to be granted to supranationals which count New Zealand among their membership: at present, just World Bank, International Finance Company and Asian Development Bank.
Heike Reichelt, head of investor relations and new products at World Bank in Washington, says the bond has also been customised to appeal to retail investors who are interested in something more than financial return, as it also has the socially responsible investment (SRI) badge. “Investors can not only achieve an attractive financial return from a safe investment, based on World Bank’s AAA/Aaa rating, but they can also make a contribution beyond this, as a result of the way the funds will be used by the World Bank: they can achieve a ‘social’ return as well,” Reichelt explains.
Ling also stresses this element, commenting: “This issue should also be appealing as it is a socially responsible investment, a factor that is becoming increasingly important to retail investors globally.”
Overall, he says Westpac is seeking an investor base looking for safe investments, with the peculiarities of the New Zealand market making it potentially fertile ground for the World Bank offering. “The New Zealand government bond market is not especially liquid, which makes the yield pick-up of World Bank appealing; normally the pick-up has to be offered to counteract lower liquidity compared to sovereign securities, but that comparison is less valid here, and World Bank is of course about the best credit there is,” he explains.
No target size has been revealed for the deal with Ling saying that, as a new market, size will be demand-led. Dore adds that the focus of this bond is not on the size, “because we are well funded this year”. She adds: “What we are most interested in is the communication aspect and getting a new group of retail investors exposed to our name.”
World Bank has a reputation for structuring innovative, tailor-made products for different pockets of retail and institutional investors around the globe, and was the first SSA issuer to price a deal in the Kauri market when that opened up for institutional investors last year. Also in 2007 the supranational made headlines when it closed its Eco-3 plus bond for the Benelux countries with a volume of €230 million (US$356.6 million). Says Reichelt: “This volume was astonishing for such a retail offering. Normally you would expect it to be in the range of €15-20 million for this kind of product.”
World Bank followed the Benelux Eco-3 Plus bond with two other similar products – one sold to Swiss private banking clients in December 2007 and a third sold in Belgium in January 2008 via the Fortis Bank network. Most recently, World Bank structured and sold a US$25 million “Cool bond” – a Certified Emissions Reduction-linked Uridashi bond – to Japanese high net worth and institutional investors.
Reichelt points out that this was the first ever public bond issued in Japan to reference the emissions reductions generated from a specific project under the framework defined by the Kyoto Protocol. She says: “By purchasing this bond, investors can indirectly participate in the market for greenhouse gas emissions reductions and support demand for emissions reductions generated from a specific clean energy project in China.”
Reichelt says these kinds of innovative bonds can take a lot of time to prepare and it is essential to find the right bank to partner with. She comments: “Daiwa worked with us on the Cool bond for over a year before it was issued. For the New Zealand retail bond, Westpac has worked with us for many months with much enthusiasm and the effort they have put into preparing every aspect of the bond, including the communication and marketing, has been remarkable.”
World Bank would be keen to replicate this kind of transaction in the Australian market, if there is interest. Dore says this New Zealand deal will provide a good blueprint for other potential retail deals in the region.
|
|
Last Updated ( Monday, 11 August 2008 )
|
