Luck of the Irish
deals
Solving smoky
problems
In its fairly short existence, Rabobank Ireland is growing in importance. Proving
it has its finger on the European pulse, Dublin has been the main initiator behind
an important European commercial paper (ECP) program.
Diversifying liabilities
Leading the way
Fine tuning
Imperial Tobacco Group Ltd (ITG)
recently made a successful bid on
the tobacco business of multi
national cliënt Sara Lee/DE,
including the well-known brand
names Van Nelle and Drum, against
a payment of NLG 2.25 billion. The
deal was structured in such a way
that part of the purchase price (close
to NLG 1.5 billion) was received in
the form of a Loan Note. At the
request of Sara Lee/DE, a Rabobank
team stepped in to investigate and
structure the deal under which
Rabobank would assume the liability
under the Loan Note, while taking
the terms and conditions of the
transaction into consideration.
In a true team effort, the Rabobank
network got together combining
relationship management (Steven
Spiekhout, Jeroen Scheelbeek and
Robin Bargmann), legal department
(Jaap Zwierenberg, Boris van Beek),
funding and structuring (Theo
Hendriks), origination and
structuring (Johan Roepman), the
fixed income and derivatives team,
the private placement team, the
bond sales team, the Eurobond
trading team (in London) and DOA
(Carolien Diesel). The teams
together developed a structure which
involved Rabobank receiving
approximately NLG 1.5 billion for
assuming the obligations of the Loan
Note from ITG. The cash was then
invested in a AAA, AA and A rated
credit portfolio. Proceeds from the
credit portfolio will be used by the
bank to cover the obligations of the
Loan Note.
The team was able to invest the
received cash in a series of private
placements and eurobond issues of
international corporate and
institutional clients and achieved an
attractive yield on the credit
portfolio. The portfolio will not
result in any solvency requirements.
Fees were earned upfront and will be
received during the eleven year term
of the Loan Note.
What'sNewS Issue8-August 1998 II
Rabobank Ireland operates in Ireland's
international financial services centre
(IFSC), a specially designated and EU
approved 10 percent tax jurisdiction.
Growth has been steady over the last four
years and Rabobank Ireland currently has
a balance sheet of over NLG 15 billion.
Treasury manages the funding of group
entities such as De Lange Landen and
Utrecht America Finance Company and
has an important role in the overall asset
and liability management of the
Rabobank Group. Designated as a trading
entity within the new investment banking
framework, Rabobank Ireland has
recently been instrumental in an
important European commercial paper
(ECP) program.
Back in February 1996, Rabobank Ireland
began the process of establishing an ECP
program, intended as Fergus
Murphy, head of treasury and
assistant general manager says,
'to diversify the bank's liability
base and also to bring down
the weighted cost of liabilities.'
However, Irish financial law
dictated that a withholding tax
on interest income, a Deposit
Interest Retention Tax (DIRT),
must be deducted at source
from maturing deposits.
Exemption could be obtained
by the investor, but in the case
of the ECP market, the issuer
(Rabobank Ireland) is not in a
position to know the identity
of the investor. The result was
a ruling that DIRT is
collectable on ECP programs,
leading to a complete absence by Irish
bank issuers in the international
commercial paper market.
That is, until Rabobank Ireland stepped
in. Working with the Irish Bankers
Federation, Murphy came to an
agreement with the Revenue
Commissioners and the Department of
Finance involving an exemption to allow
Irish banks to avoid collecting DIRT on
bearer programs. 'It gives us the
opportunity at last to commence a
program,' continues Murphy, 'and as the
driver behind this initiative, we can
justifiably say that we are responsible for
pushing it through.' General manager
Ruurd Weulen Kranenberg adds: 'We are
one of the flagship banks in the Dublin
market and it is appropriate we should
lead the way in this area. Since the
agreement the flood gates have opened
and now many Irish domiciled banks
are using ECP.'
The program was finally signed early July
1998. It is fully guaranteed by Rabobank
Nederland and initially has a size of one
billion USD. 'We
expect it to be well
met in the market,'
continues Weulen
Kranenberg, 'and
the long awaited
diversification in
our liability
sources should
now be achieved
as ECP will stand
alongside
Intergroup,
Interbank and
corporate deposits
in our balance
sheet. We will
ensure trans-
parency in the
market with other
paper issued by Rabobank (such as
Rabobank Australia) and will coordinate
and report the activity to the global
balance sheet manager and the global
product manager STIR.' The dealers on
the program include Warburg Dillon
Read, Citibank, Goldman Sachs and
Rabobank Nederland. The issuing and
paying agent is Bankers Trust.
Fergus Murphy, instrumental in
creating Dublin's European
commercial paper (ECP) program
