11.12.2017 – 10:30
KfW capital market activities 2018
Focus on liquidity and sustainability
Frankfurt am Main (ots)
- Liquidity is key: KfW benchmark bonds enjoy huge success - Potential increase to outstanding euro benchmarks - Commitment to responsibility on the capital market comes to fruition - KfW plans to raise EUR 70 to 75 billion in capital markets in 2018
KfW has taken advantage of the excellent funding conditions that have presented themselves this year, particularly with regard to the issuance of EUR bonds. As of 6 December 2017, it had issued bonds in the amount of EUR 77.3 billion for the refinancing of its promotional business on the international capital markets. The share of the EUR market has exhibited a multi-year high of 54% (2016: 36%), while contrastingly the share of the US dollar market has dropped to 35% (2016: 47%).
The significantly increased demand for euro bonds is not exclusively a result of the Eurosystem's PSPP programme; buyers included numerous European and Asian investors, the latter having been generally more hesitant last year. Therefore, the overall funding costs in this market segment have significantly improved as compared to the previous year. "Demand was stimulated by the return of investors' optimism following the presidential election in France. The sentiment in Europe has been much more positive throughout the course of this year, and is currently strengthened by good economic data. This general picture may set in as a result of the anticipated gratifying developments in the economy in the euro zone. For this reason, we are expecting continued demand for euro bonds", explained Dr Frank Czichowski, Treasurer of KfW Group at the promotional institution's capital market press briefing in Frankfurt.
Furthermore, the trend reveals that investors have a clear preference for large-volume, liquid bonds in the core currencies of EUR and USD. This explains why 72% (equivalent to EUR 55.2 billion) of KfW funding this year is comprised of twelve KfW benchmark bonds in EUR and USD as well as four taps of EUR benchmarks - the highest share since introducing the KfW benchmark programmes 16 years ago.
An essential strength of the KfW funding strategy is its high product diversification, which is also seen in its variety of currencies. As of 6 December 2017, 141 bonds were issued in a total of ten currencies. Despite the Brexit-induced uncertainties KfW was able to achieve very good results in the sterling market and is, with an equivalent of EUR 5.2 billion, even the biggest issuer in the segment. With an equivalent of EUR 1.9 billion, KfW is also the biggest issuer in the Kangaroo bond market (foreign-issued public bonds denominated in Australian dollars). In the JPY market, KfW issued bonds equivalent to EUR 1.4 billion in 2017. KfW profits from its long-standing business relationships with Japanese investors, who have acted far beyond the Japanese market to again play an essential role in KfW funding.
KfW is planning a funding volume of EUR 70 to 75 billion for 2018. In the process, its diversification of products (benchmarks, other public bonds and private placements) and currencies ensures not only continuity, but also flexible adaptation to the requirements of investors worldwide, in order to achieve the best possible refinancing results for its promotional business. KfW will respond to investors' need for highly liquid bonds by considering increasing its outstanding euro benchmark bonds up to a volume of EUR 6 billion in accordance with demand.
Responsibility on the capital market
Naturally, the promotional bank will also offer "Green Bonds - Made by KfW" in 2018. This market segment is distinguished by sustained dynamism: the current volume of new issues for 2017 is over EUR 90 billion (2016: EUR 68 billion, 2015: EUR 32 billion), to which many new issuers and products worldwide have contributed. Germany holds the third largest share overall, after the People's Republic of China and France. The outstanding volume of "Green Bonds - Made by KfW" now amounts to EUR 12.9 billion and corresponds to a worldwide market share of close to 6%. KfW's market share in Germany amounts to over 65%. In the current year, KfW has issued seven transactions in four currencies - among them two private placements in USD for the first time - in a total volume of EUR 3.7 billion. KfW will continue its programme in 2018, issuing at least one large-scale green bond in both EUR and USD.
Within the framework of its promotional activities via the capital market, KfW this year invested around EUR 1.1 billion in SME securitisation in Europe and around EUR 300 million in green bonds (also focused in Europe). With this, KfW's green bond portfolio has now grown to around EUR 900 million. In order to be able to continue to effectively support the green bond market segment, the target volume of the portfolio on behalf of the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) was anticipatorily increased to EUR 2 billion in May 2017. For 2018, the promotional bank is planning investments in SME securitisation in Germany and Europe in the amount of EUR 1 billion. It is planning new investments of about EUR 300 million in its green bond portfolio, in the process of which it will particularly highlight its high qualitative minimum requirements to issuers, in order to especially promote the market segment's "green quality".
Following two years of successful collaboration, KfW was once again voted in as an investor to the Executive Committee of the Green Bond Principles, which have been gaining considerable international acceptance as a framework. In this context, KfW will continue to encourage the further development of market standards, particularly focusing on the topic of impact reporting.
"From the very beginning, our involvement in the green bond market has been in pursuit of long-term contribution to the creation of an infrastructure for financing climate and environmental protection projects on the capital market. This is now coming to fruition, as green finance has arrived on the capital markets", the KfW Treasurer declared. Considering that capital markets are an important component of economic systems, the intensification of dialogue on sustainable finance amongst market participants, politicians and stake-holders from science and civil society worldwide is a key aspect on KfW's agenda.
For detailed figures and more information:
- Press Briefing Handout: http://ots.de/diVbp