Presentation on theme: "Lourdes Rodríguez, IRO, European Investment Bank November 2005 Debt IR, a perspective from the Fixed Income Markets."— Presentation transcript:
Lourdes Rodríguez, IRO, European Investment Bank November 2005 Debt IR, a perspective from the Fixed Income Markets
Not listed => Fixed income securities are the only access to capital markets Shareholders: EU Member States AAA rating Large issuance volume: around EUR 50bn Regularity: among most frequent issuers Diversity: in terms of products and currencies (15 used in 2004) EIB as an issuer: characteristics 2
Summarising complex issuance at EIB 2004 VolumeEUR 50 bn Nr of issues282 Nr of currencies15 Core currencies (EUR, GBP, USD) 90% Structured20% Types of structureOver 10 types, many variations 3 In perspective - most frequent issuer in public international market according to IFR (Top ) The challenge – tailoring information to different currency / product market segments, as well as differing investor needs
Why do we communicate? Value of debt securities is determined by macroeconomic factors, such as interest rates bond characteristics (coupon, yield, spreads, seniority, …) the credit standing of the issuer existing or anticipated supply of fungible debt securities Investment Grade Sovereigns Investment Grade Corporate Debt High Yield Corporate Debt Information on the issuer Less important! Important! Very important! rating / characteristics and positioning of the issuer The value of a debt security is subjective 4
Differentiation within rating categories is visible in the variation of spreads: credit differentiation is one factor This also applies among AAA sovereigns and sovereign surrogates such as EIB Credit story identifies credit strengths, relative to peers Therefore appropriate emphasis in Communications is required to duly explain differences Differentiation beyond the rating 5 RatingSectorIssuerBondASW AAAsupraIADB5.5% 01/10-8 AAAsupraEIB4% 04/09-11 AAAagencyKfW3.5% 04/09-8 AAAagencyFreddie Mac3.75% 07/09+2 AAAsovereignSpain3.6% 01/09-11 AAAsovereignFinland5% 04/09-12 Why do we communicate? Source: Market, May 2005
Structuring the team Importance of investment banks / dealers in a relatively dealer- driven market However, effective IR activity enables better leveraging of dealers in investor communication Complex and high frequency international issuance programs lend themselves to use of sizeable in-house teams with specialist origination and IR executives This contrasts with the traditional Treasury led operation Organisational issues 6 Who communicates?
1.Diversity of debt products Equity: one brand, one product Debt: one brand, multiple products Information on the array of products available Accessibility to listings of outstanding issues and its characteristics Documentation: Accessible (before and after issuance) Clarity of the information Is it up to the standards required by our investor base? Adapting to the market 7 How do we communicate?
2.Different content emphasis – reflects audience needs Equity: shareholder value story, sectoral and market cap factors Debt: credit story / market segmentation, issuance strategy, product market specifics 3.Trading & transparency differentials Equity: Exchange / electronic trading leads –> transparency benefits Accessible for retail, strong direct participation Debt: Electronic platforms important for highly liquid benchmarks But, dealer-provided liquidity is central Otherwise strong OTC culture / poor transparency Relatively large trades / low frequency Less direct access for retail -> cost issues Implication: greater demand for information from debt issuer Adapting to the market 8 How do we communicate?
4.IR tools similar than in Equity IR, except in investor data Prevalence of bearer securities reduces debtholder visibility Cost for debtholder ID across multiple bonds can be punitive, (which reinforces the importance internal data warehouses) Integrated data/CRM systems, which allow for the diversity and complexity of the debt securities, not offered by large providers In terms of consultancy/outsourcing Adapting to the market 9 How do we communicate?
EIB issuer category: sovereign class : Consolidated European Sovereign Issuer Points of differentiation include: Pan-European exposure The Way to buy Europe Risk diversification via ownership structure: 25 Member States of the EU Credit quality: Top AAA Exceptional asset quality Strong shareholders support – EU members States Minimal headline risk Mission – activity: Policy-driven public bank: promotes EU policies by financing investments that further European integration Focus on relevant credit strengths What do we communicate?
Standard and Poors Credit Quality Index Ultimate obligors of EIB loans as of 31 December The Member States and EU Public Institutions are ultimate obligors for over 50% of the loans -78% of EIB loans are backed by a formal guarantee The index measures the risk embedded in the country loan portfolio of Multilateral Lending Institution. Source: Standard & Poors (Credit Report, March 2005) Loan quality in perspective – an example What do we communicate?
Funding strategy: Pursuit of liquidity across comprehensive yield curves Close attention to secondary market performance Types of products: Sole supranational benchmark issuer across the curve in the three core currencies: EUR, GBP and USD Tailor-made plain vanilla and structured issues in various currencies Market characteristics: Responsiveness: to the market in terms of timing, product and maturity selection Quality of execution – Transparency – Liquidity - Performance Funding strategy and positioning 12 What do we communicate?
Introducing presence in a currency- an example 5bn bn bn bn bn bn bn bn bn bn bn bn 2020 (A trademark of EuroMTS) EIB IN EUR 2004: EUR 17.4bn via 54 transactions Ground-breaking 15-year EARN benchmark As of Oct bn Highlights: EUR 18.3bn via 84 transactions Ground-breaking 30-year EARN benchmark Record issuance of structured transactions (around 50% of issuance in EUR) 13 What do we communicate? 5bn 2015
Selling points for a market segment – an example 14 EUR Benchmarks – Euro Area Reference Notes (EARNs) Total benchmark outstanding approx. EUR 64 bn Diversified exposure to all EU sovereigns (a reminder) Sovereign class liquidity and tight bid-offer spreads Most heavily traded quasi-sovereign on MTS system Transparency: Electronic trading on leading platforms Liquidity maintenance in the secondary market (e.g. EUR 474 million increase of EARN 3.25% Oct 08) What do we communicate?
A variety of value drivers other than credit may be considered: issuer positioning and commitment in this segment macroeconomic factors, such as interest rates bond characteristics (coupon, yield, spreads, seniority, …) relative value supply of comparable debt securities Selected topics during an issue What do we communicate?
EARN 2015 is launched at a moment of… … limited government supply … low yield in short maturities and offers… … good value versus core governments EARN 2015 fits the market environment 16 Selected topics during an issue – an example
Good value versus core governments Source: CSFB, as of Sep. 9th Selected topics during an issue – an example What do we communicate?
Investors Analysts Rating agencies Internal audiences Specialized press Same audiences To whom do we communicate?
Top Borrowers as voted by Banks No.1 Most impressive borrower of 2004 No.1 Best Supranational / Agency No.1 Most innovative Borrower Overall Deals of the Year 2004: No.1EUR 4bn 4.625% April 2020 No.5USD 1.5bn 4.625% May 2014 Deals of the year by category: No1. EURO Sovereign / Supranational / Agency EUR 4bn 4.625% Apr No.1 USD Sovereign / Supranational / Agency USD 1.5bn 4.625% May 2014 Currencies: Deal of the year in New Zealand Dollar (NZD 200m 6.5% Sep 2014) No.2 Emerging Markets (HUF 46bn 9% Jul 2007) Borrower of the Year 2004 European Borrower Agency / Supranational Borrower Supranational / Sovereign / Agency bond Best Supranational Borrower in Western Europe 2004 Institutional Performance Award Deals of the Year: JPY 50bn Japanese CPI-Linked Notes EUR 190m/EUR 250m CMS Spread Target Redemption Notes EUR 625m CMS Periodic Capped FRN Best Borrower in CEE for the year 2004 Best bond deal in local currency USD 75m / RUB 2.1bn 2010 Synthetic Transaction Best bond deal in a G7 currency EUR 4bn 4.625% April 2020 And deal specific awards: Press convey recognition among dealers for EIB