2016 Funding Wrap Up and 2017 OutlookKBN has reached the end of 2016 having raised USD 10 billion of long term funding via its flexible and diversified funding operations.
KBN’s 2016 funding breakdown
On the back of slightly higher than expected lending growth throughout 2016, KBN’s funding programme came in at the higher end of forecasts. KBN raised USD 10 billion in 2016 and managed to complete two successful USD benchmark transactions, a successful EUR benchmark and issued its third syndicated Green Bond, following transactions in 2013 and 2015, again demonstrating KBN’s strong commitment to the Green Bond market.
KBN opened its Benchmark programme with a USD 1.0 billion 5-year RegS/144a transaction due 10 February 2021. Then in April, KBN completed its first 10-year EUR benchmark, a EUR 1.0 billion bond due 20 April 2026. This was KBN’s second EUR benchmark and its first 10-year transaction, highlighting KBN’s solid position in the international capital markets. KBN completed its Benchmark programme in September, with another successful USD 1.0 billion 5-year RegS/144a transaction due 31 August 2021.
KBN reiterated its commitment to the Green Bond market launching its third Green Bond on 19 October 2016, pricing a new USD 500 million 4-year bond to support climate friendly projects. The Bond Proceeds are reserved for financing climate friendly projects according to KBN’s Green Bond framework. The orderbook was twice oversubscribed and KBN is delighted to see the global interest in the KBN Green Bond Program. This trade was the first trade completed under KBN’s second generation Green Bond framework, given the highest rating by Cicero, the leading second opinion provider for green issuance programs. An increasingly important part of the KBN government mandate is to promote green awareness and investments in the Norwegian local government sector.
As with previous years, the Japanese retail market remained a major source of funding for KBN in 2016. Approximately 24% of KBN’s total funding programme for 2016 came from the Uridashi market in Japan. Although issuance volumes in the market are down for 2016, KBN continues to maintain a leading market share in the Uridashi market.
KBN also successfully executed its inaugural Formosa transaction in July 2016. This was followed up with a larger, second outing in November. KBN has now issued USD275 million in the Formosa market (onshore issuance by a foreign issuer in Taiwan) and KBN is the first of the Nordic agencies to issue in this format. Both KBN bonds were 30-year Zero Coupon with a call option every 5 years for the July issue and every 4 years for November’s trade.
These transactions add Taiwan to KBNs list of markets for strategic funding and support KBNs strategy to nurture its presence in niche public markets, ensuring diversified sources of funding.
KBN continued to build on its success from previous years in smaller Institutional markets, accessing the Kangaroo, Kauri and Norwegian Krone markets with regularity. KBN raised AUD 445 million equivalent in the Kangaroo market across 2 different maturities, whilst also raising NZD 200m in the Kauri market. KBN also saw somewhat of a resurgence of issuance in the NOK market in the 2016, raising NOK 1 billion via a March 2036 bond.
Overall, KBN’s total funding programme for was fairly balanced between Benchmark funding (31%), institutional niche markets (26%) and the Uridashi market (24%). Private Placements represented 19% of total funding and helped diversify KBN’s funding programme.
Q3 Results Released
Q3 2016 figures released during Q4 show that KBN achieved solid results and that underlying operations are solid. KBN’s net interest income in the third quarter was NOK 572 million compared to NOK 391 million in the same period last year. The increase is mainly due to good lending growth and increased margins.
Profit for the third quarter 2016 was NOK 198 million, compared to NOK 572 million in the same period last year. The result is influenced by unrealised losses from valuation of financial instruments totalling NOK 228 million compared to an equivalent gain during the same period in 2015. The unrealised losses are primarily related to funding operations and hedging derivatives, but also from fixed rate loans to customers.
Since financial instruments are normally held to maturity, the effect of unrealised value changes on the results are reversed when the instruments mature or by a reversal in market movements.
End of year 2016 results will be released 31 March 2017.
Future prospects and funding forecast
KBN is targeting a borrowing programme of USD 11-12 billion for 2017.
Lending growth in 2017 is expected to remain similar, or slightly higher than was achieved in 2016. KBN continues to give priority to loans with longer maturities as it manages its capital position, crucial in KBN’s ability to be a long-term partner to the Norwegian local government sector.
KBN will actively look to raise its funding across its four key funding markets. Benchmarks, both in USD and EUR, Institutional niche markets (such as the AUD, NOK, CAD, GBP, NZD), private placements and retail markets.