KfW's multi-currency funding plans take off

LONDON, Jan 12 (IFR) - Triple A rated German agency KfW has already completed around 12.5% of its EUR80bn funding target for 2012 and has paved the way for other European SSA issuers to follow suit after reopening the Kangaroo and dollar market as well as being the first to test appetite for 10-year euro paper.

"So far, it has been one of the most successful starts for KfW. In the first nine days of business we have already raised around EUR10bn in seven different currencies," said Horst Seissinger, head of capital markets at KfW.

January's fund raising has included Australian, Canadian and U.S. dollars, euros, sterling and Swedish and Norwegian crowns across maturities ranging from two to 10-years.

"Sentiment is good, it's better than expected and there is a growing view that the negative sentiment at the end of the year was overdone. Investors have little alternative other than to start investing again," he added.

KfW, which is benefitting from its explicit guarantee from Germany, reopened the Australian dollar market for foreign issuers with a AUD250m tap on Thursday and was the first European issuer to access the US dollar market with a three-year USD4.5bn global bond last week.

It followed that up with a USD1.25bn two-year FRN on Thursday, which priced at three-month Libor plus 18bp via RBS and Citi. It was also the first European issuer to test appetite for a 10-year euro bond, pricing the EUR4bn bond in line with guidance at mid-swaps plus 25bp via Deutsche Bank, HSBC and UBS.

Books grew steadily from EUR1bn after just one hour of marketing and closed at EUR4.4bn with demand from 173 investors. There was a particularly strong domestic bid with Germany taking the largest portion with 46%, Asia 22%, the UK 11%, Scandinavia 5%, France 4%, Switzerland 4%, Benelux 3%, the Americas 3% and other European 2%.

By investor type, banks took a small majority with 51%, central banks 23%, funds 20%, insurers 4% and others 2%.

"The market needed someone like KfW to give an idea of what the premium should be and a clearer idea on where investors are willing to buy," one of the bankers on the trade said, estimating the new issue premium at about 8bp.

The issuer also priced a GBP550m four-year bond on Monday -- its first sterling benchmark in a year -- at 90bp over the 4% 2016 Gilt and an estimated 3bp-5bp new issue premium over its existing curve. That compared to Gilts plus 160bp on a smaller trade of a shorter maturity issued by the European Investment Bank the prior week. Deutsche Bank, HSBC and UBS also managed that trade.

"KfW is viewed very much as a surrogate to governments, whereas EIB has the credit of Europe, so you would expect KfW to come much tighter," said a banker close to the deal.

The 1.75% January 2016 bond, initially expected to be GBP300m, fits KfW's sterling curve between its existing 5.5% December 2015 and 3.75% September 2016 bond.

More than 50 investors participated with UK accounts leading the way with 65% of the orderbook. EMEA followed with 19%, Asia 11% and other 5% making up the remainder of demand. In terms of investor type, the order book was of very high quality with asset managers taking 49%, central banks and official institutions 23% and insurance companies 10%.

DOLLAR 10-YEAR ON AGENDA

KfW said it aims to stick to its usual goal of completing around two thirds of its annual funding plans by start of the summer break, and will stick close to its usual split between euro and dollar funding of about 50% and 30% respectively.

Although KfW has issued two dollar deals already this year at the shorter end, the longer part of the curve is more challenging. KfW said it was monitoring market conditions and waiting for more stable conditions.

The last time the agency raised 10-year money in dollars was in August with a USD2bn trade and two USD4bn transactions prior to that in 2010.

"A 10-year dollar deal is on our agenda for 2012, but whether that is in the next few days or week is too early to comment," said Seissinger.

KfW requires dollars for its group's activities in export and project finance, but would be active in the dollar market anyway regardless of that.

"It's the most important capital market and to diversify our funding risks you have to have access to that market. We are a regular issuer in the US dollar market, independent of whether we need all of the dollars to fund," said Seissinger, noting the favourable swap rate from dollars into euros. (Reporting by Natalie Harrison, IFR Markets)