The ins
and outs
ofbonds
issuance
Michael Gower
Meeting the mandate
There are two prongs to the long-term funding effort. Large vanilla-type bonds are issued through
our €60 billion global Medium Term Note programme. They can be in almost any currency, on either
a fixed- or floating-rate basis.The issue size tends to be large, with a €1 billion five-year issue, for
example, being classified as a 'benchmark.'
The structured-note market, which tends to be more cost-effective, accounted for around €6 billion of
long term funding in 2004. Here, investment banks propose an innovative or more complex structure, a
bond with a call feature, say, or with index-linked coupons. Typically, these issues are privately-placed
and far smaller, averaging around €25 million. Almost anything can be considered, so long as the position
is swappable into floating-rate, can be properly valued and doesn't undermine the Rabobank brand.
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The Funding Desk has the job of implementing this on
the Group's behalf. 'Diversification of investors is one of
the key elements in ensuring we are able to raise the
funding we need,' says Head of Long Term Funding,
Michael Gower. 'Developing alternative sources of
liquidity doesn't always mean better prices, but over time
it does gives us increased security and availability. When
you're talking about multiple billions that is almost as
important as cost.'
As a regular, frequent borrower with a Triple A rating,
Rabobank paper appeals to a broad range of both
institutional and retail investors looking for low-risk
opportunities as part of a diversified credit portfolio.
Rabobank works closely with investment banks, relying
senior debt (funding with maturity longer
than 1 year).
Fiere's how it works. At the end of each
year, the various parts of the business
work out their requirements for the next
fiscal period. These are submitted to the
Group's Control and Risk Management
departments. Following discussion this
develops into a funding plan, which also
takes account of maturing debt and other
existing liabilities.
CFO Bert Bruggink, who has overall
responsibility for the balance sheet,
presents this plan to the Executive Board.
The Board then passes a long-term
Funding Mandate, which prescribes the
amount that needs to be raised, the
minimum required average maturity and
a target average cost.
The balance sheet has been growing
faster than domestic savings for many
years now. Rabobank has, therefore,
become more active in the international
capital markets. In each of the past two
years, the Funding Mandate specified a
€16 billion target. Last year, Rabobank
managed to raise almost €20 billion.
