Sticking to innovation WHAT'S News Issue 1 January 1996 new products 19 DEDICATED TEAMS 'But our target area covers a broad range of other sectors as well,' says Vaarties. 'In fact, we do everything you can't eat or drink. The telecom market is our second main stream at present. This is a very interesting market. There is now a dedicated team in position in the US and there will be a similar team here in Utrecht. You can split "telecom" into two main sectors - media, which includes areas like cable television, and telephone, which includes for example, mobile phone services. But our team will also remain dedicated to the other areas we work in. In general, that means all imaginable industrial projects, such as waste treatment, chemical plant financing, oil and gas projects. Because of political risks usually involved in the projects, it is difficault to finance infrastructure, which does indeed not receive a particularly positive response from the bank.' EXPORTABLE CONCEPTS In international terms, the team is gradually becoming more active in cross border projects. Recently, it structured a DEM 100 million deal for a German co- generation project. 'We had done similar project finance for Akzo Nobel in the Netherlands so we had built up quite some experience. It was interesting to see how "exportable" concepts are. We're currently working on another cross-border project, this time for the Dutch paper giant KNP BT. About three years ago, we financed a co-generation plant for them in the south of Holland. Now KNP BT is working on a co-generation plant for their big paper production plant across the border in Belgium.' NETWORK SUPPORT Vaarties says that cooperation and support from the international network is extremely useful when doing cross-border deals. 'We worked closely with Rabobank Dick Vaarties business. no risky It's calied a 'sticky cap floater'- a hybrid creature of financial engineering that Rabobank has been first to release onto a market that was hitherto dominated by traditional fixed-rate bonds and some floating rate notes. The purpose is to give customers a chance to bet against the long-term movements in the capital market,'says Bart Heenk, head of derivative sales. 'It's basically an instrument for those who think the steep yield curve is overdone.'Until recently, such unique opportunities were available only to private investors.They would be assembled by arrangement with investment banks like JP Morgan and Morgan Stanley. Like a Saville Row suit, these were investments cutfor a special taste. Now, Rabobank has brought sticky caps to the open market.They are being offered not only to the pension funds, insurance companies and money managers in denominations of NLG 100,000, but also to retail customers in smaller sums of NLG 5,000 and 10,000. (The total issue size is NLG 200 million.) 'This kind of thing happens more and more these days,' remarks Heenk. 'You start out with a tailor-made product for a particular investor and then realize this instrument has a potentially wider appeal. In this case,you have a bond created on the assumption that the difference between short- and long-term interest rates is too wide.Why not sell it off- the-shelf it to anyone who takes the same view?' Fair enough. But why the name 'sticky cap?' Basically, because investors get a premium of 50 basis points over the London interbank interest rate,(or Libor).This creates a nice little incentive, when you consider the alternative is a regular deposit that pays libor minus 12.5 points. As always, such upsides require the Deutschland on the Akzo deal last summer,' he says. 'In Germany, people do business in German. All the documentation was in German. So simply from a language point of view, we really needed them. Besides that, there are a lot of local regulations and the environmental aspect is very important in Germany. We were able to tap into a cheap funding source which is provided for environmentally-friendly projects. Local market knowledge of this kind is indispensible.' LOOKING AHEAD Although the project finance team has already gained a considerable position in both energy and Utilities, there is still some taking of a certain risk. In this case, if the short term interest rate hits 7.5 percent on any one of the 20 market rollover days that occurevery six-months during the ten-year life of the bond, it automatically converts to a Standard fixed-rate note at that level. Hence, the sticky cap. Now, investors who consider the differential between short- and long-term interest rates too high have a vehicle to act on that view. Neither ING nor ABN Amro can offer their clients the same thing. 'Smiles Heenk: 'I think we caught the other banks by surprise.' way to go before they achieve similar positions in all their target areas. 'And that will not be limited to the domestic market,' Vaarties confirms. 'We've been given the go-ahead to broaden our scope, especially in the energy field, to cover the whole world. We'11 be pushing further into Europe, the Far East, but also North and Latin America. The bank was involved in a number of projects in those regions in 1995, and we're looking to expand on them in the near future.'

Rabobank Bronnenarchief

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