Well positioned heading into Q4
Due to a fairly well advanced funding programme heading into the summer, KBN’s funding activity was selective and targeted the mid-longer end of the curve. Funding highlights included a successful new 5yr USD 1.0bn Benchmark, an inaugural Formosa Bond and selective issuance in longer dated in maturities.
As of 30 September, KBN has raised approximately USD 8 billion equivalent, via 233 individual trades across 11 different currencies.
KBN Q2 RESULTS RELEASED
Net interest income was NOK 970 million during H1 2016 against NOK 803 million in the same period of 2015. This reflects good margins in the operations during the first half year as well as good growth in lending.
Profit for the second quarter 2016 was minus NOK 203 million, down from NOK 480 million in the same period last year. The negative result in the second quarter is owing to net unrealised losses on financial instruments of NOK 697 million as compared to a gain of NOK 295 million in the same period last year.
The unrealised losses in the second quarter are related to funding operations and hedging derivatives, as well as fixed-rate loans to customers. KBN’s net interest income in the second quarter of 2016 was NOK 467 million, up from NOK 404 million in the same period last year.
KBN’s operational performance is solid. The increase in net interest income is owing to good margins within KBN’s main areas of operation, as well as satisfactory growth in lending.
Unrealised value changes contributed to the profit of NOK 55 million during the first six months compared to NOK 520 million in the same period last year. The low profit reflects that NOK 814 million was allocated to net unrealised losses on financial instruments, against a loss of NOK 13 million for the corresponding period last year. As the financial instruments are normally held to maturity, the effect of the unrealised value changes on the profit is reversed when the market movements are reversed or when the financial instruments matures.
USD Benchmark Return
On Tuesday 13th September 2016, Kommunalbanken Norway (“KBN”), rated Aaa/AAA, launched a new US$1 billion “no grow” 5-year RegS/144a benchmark at mid-swaps plus 33bps. This equated to a spread of 33.25bps over the benchmark UST 1.125% Aug 2021. The transaction carries a 1.500% semi-annual coupon and a re-offer yield of 1.538% semi-annual.
This highly successful new issue represents KBN’s second US Dollar benchmark this year, and the significant oversubscription and price inelasticity amongst investors demonstrates the robust confidence that the global investor base has in the KBN credit and Norway.
The degree of interest for this $1bn ‘no grow’ trade meant that price guidance was revised multiple times throughout the process and books were closed with 57 orders totalling in excess of US $2 billion.
The trade enjoyed well balanced distribution with central banks and official institutions accounting for 54%, banks 36%, asset managers 9% and insurance /pension demand 1% of the deal. Geographically US investors taking 33% of the deal, followed by accounts from Europe with 27%, Asia 27%, the Americas 12% and ME/Africa 1%.
Inaugural Formosa Bond
KBN successfully executed its inaugural Formosa transaction in July 2016. The bond is a 30-year Zero Coupon with a call option every 5 years. Total notional size is USD 110 million.
On 22nd July 2016 Kommunalbanken priced its first Formosa bond, an onshore USD-denominated bond issued by a foreign issuer in Taiwan. The bond, a 30 year Zero Coupon callable, pays an equivalent coupon of 3.30% per year and was upsized from the original USD 80 million size to USD 110 million.
The transaction adds Taiwan to KBNs list of markets for strategic funding and supports KBNs strategy to nurture its presence in niche public markets and ensuring diversified sources of funding. KBN is the first of the Nordic agencies to issue in the Formosa format.
Local Sector Role in Green Shift
KBN as a long-term partner to the Norwegian Local Government sector, has played a vital role in helping municipalities and counties finance investments in the areas of low-carbon transportation, renewable energy and energy efficiency, water and waste management and carbon friendly or green buildings.
In August, KBN and Zero (an independent, non-profit climate focused environmental foundation) invited politicians to debate the local government sector’s role in Norway’s Green Shift during Arendalsuka. Arendalsuka is an annual forum where national delegates in politics, society and industry meet each other and the public, to debate and develop policies for the present and future.
The debate centred on how the local government sector can manage the transition to a low carbon society and what opportunities municipalities and regions have in taking a green position. Panel members also discussed the financial aspects of this green shift and the opportunities and challenges this shift entails.
In July 2016, KBN also updated its Green Bond framework based on the Green Bond Principles and a supplemental criteria set for Project selection, documentation and reporting. The new framework has a Cicero second opinion with a Dark Green shading.
KBN aims to issue its third USD public Green Bond during Q4, with a maturity focus of 3-5 years.
Read more on Green Bonds
The KBN Funding Team