NRW.BANK to update Australian and Japanese investors as it plans Kangaroo market return

Friday, 08 January 2016

On January 7 NRW.BANK – the state development agency for North Rhine-Westphalia – announced that it will be roadshowing in Sydney and Melbourne on January 18 and 19, followed by a visit to Japanese investors, to discuss appetite for Australian dollars. The issuer has dusted off and renewed its A$3 billion (US$2.1 billion) Kangaroo programme which was first launched in 2005.

The roadshow is being organised by RBC Capital Markets (RBCCM) in Australia and Daiwa Capital Markets (Daiwa) in Japan. RBCCM is also acting as arranger of the Kangaroo programme.

NRW.BANK has issued in the Kangaroo bond market once before, pricing a A$300 million, five-year transaction in 2006. Frank Richter, head of investor relations at NRW.BANK in Düsseldorf, says much has changed since the agency's debut, which should lead to more consistent issuance in the future.

He comments: "In the past we had the disadvantage of not being repo eligible in Australia, which triggered a price disadvantage. Today, being on the level-one high-quality liquid asset [HQLA] lists in Europe is much more important. Moreover, no foreign supranational, sovereign and agency [SSA] issuer qualifies for the level-one HQLA list in Australia, which means we are all on a level playing field."

Richter – who will be roadshowing in Australia along with Klaus Rupprath, Düsseldorf-based senior managing director and head of capital markets at NRW.BANK – adds that the Kangaroo investor base has also developed since the agency's first foray into Kangaroo bonds. "We are seeing demand from Australian banks and funds as well as from Japanese life companies, central banks and even Swiss-based investors. This broader demand offers opportunities across the curve, which makes it easier for issuers to find a maturity which works for both themselves and the buyers."

Richter has also been encouraged by the experience of big-volume issuers such as KfW Bankengruppe (KfW) and Rentenbank as well as the other German state development agency active in the Kangaroo bond market, L-Bank. "You can imagine that we talk to each other and what is good for these other issuers should be good for us. Their advice has been that we need to 'join the club'."

Richter is keeping near-term Kangaroo expectations realistic, targeting a minimum volume of A$100 million and a maturity range from three years upwards should market conditions allow. He is indifferent between fixed and floating-rate notes and would be happy to issue a dual-tranche deal, insisting that issuance will mirror investor demand.

"We are keen to dip deeper into the Australian and Japanese investor bases," he comments. "We also recognise that the Australian dollar is getting more weight in central-bank reserve allocation. So the idea is to provide an instrument that our investors need."

For now, NRW.BANK will focus on vanilla Kangaroo bonds – even though it has started to build a euro green-bond curve. Richter explains: "We need to concentrate our resources in this asset class in euros because we do not have unlimited green assets."
 
The agency has defined a strategy which aims to establish an ongoing presence in Australian dollars, and will tap issuance in line with market standards and to improve liquidity. Ultimately, says Richter, NRW.BANK plans to issue up to 5 per cent of its annual funding in Australian dollars. Its funding task for 2016 is around €10.0 billion (US$10.9 billion) equivalent.

In terms of pricing comps, Richter says any of the German agencies active in the Kangaroo bond market represent a similar risk profile as they are all German public-sector risk. Within this group, he adds, the closest similarities are found between L-Bank and NRW.BANK – in terms of funding task, issue size state ownership and guarantee structure. "At the end of the day market forces will determine the right price. We will make a call based on the advice we receive from RBCCM and Daiwa, as well as the colour we receive from investors during the upcoming roadshow," he comments.

Richter stresses the fact that NRW.BANK offers a guarantee from the state of North Rhine-Westphalia, its ownership – 100 per cent state-owned – its strong capital base and its Basel III-compliant key figures. He adds: "We offer diversification within the German public sector, which is more important than in some jurisdictions because the German sovereign and states do not have a presence in the Kangaroo bond market."

NRW.BANK offers a pick-up versus KfW and Rentenbank, while also having a focus on strong secondary-market performance. Says Richter: "We only issue if there is demand, we only use strong investment banks to lead our deals, and we offer alpha. This all means we are not aggressive in primary-market pricing as our focus is on achieving the intrinsic performance potential of each deal."