Despite the volatility and turmoil caused by COVID-19, KBN has managed to navigate difficult capital markets and at the end of the quarter, is poised to support Norwegian local governments through the challenges associated with the outbreak of the coronavirus.
KBN reached the end Q1, raising approximately 37% of its estimated borrowing programme of USD 8 billon equivalent for 2020. As the majority of KBN debt issuance is in foreign currencies, a depreciating Norwegian Krone (NOK), especially against USD and EUR, has had the effect of lowering KBN’s funding programme somewhat for 2020. It should be noted though, this total may be revised upward as lending growth is adjusted due to higher borrowing requirements from local governments related to the covid-19 outbreak.
Q1 highlights
At the end of March, the Government of Norway resolved to increase the equity capital of KBN by NOK 750 million. This capital increase enables KBN to lend up to an extra NOK 25 billion to the local government sector.
One of the measures the Norwegian government has introduced as a result of the coronavirus outbreak is to inject NOK 750 million of new equity into KBN “to help the markets to function as well as possible and to prevent municipalities’ refinancing of short-maturity securities from contributing to further stress in the markets”.
The government’s proposal will enable KBN to refinance a significant amount of the local government sector debt that is due to mature between now and the Summer.
Press Release
The 2019 Impact Report published on 28 February, presents the projects financed by KBNs green bonds and their associated environmental impact. In 2019, growth in green loans accounted for 49 percent of the bank’s total growth in lending. 6.2 billion NOK were disbursed to green projects.
KBN reports on key indicators, such as the amount of greenhouse gas emissions avoided, the amount of renewable energy produced or the increase in capacity for water and wastewater treatment facilities. The projects KBN finance contribute to:
- 50,938 tonnes CO2e reduced and avoided annually
- 37 GWh energy reduced and avoided annually
- 109 GWh renewable energy produced annually
2019 Impact Report
Read the full story
On 31 March, KBN was announced winner of the Impact report of the Year category in the 2020 Environmental Finance Bond Awards.
Covering USD 2.16 bn. of green loans distributed to 176 projects in eight project categories, KBNs 2018 Impact Report demonstrates the environmental impact of a diverse asset portfolio in a transparent and reader-friendly manner. The appealing layout and the thorough use of infographics and key figures have been praised by investors and has already inspired similar approaches by some of KBN’s peer issuers.
Winning the 2020 Impact report of the year award is a much appreciated recognition of KBNs considerable efforts in this area over several years, says Jannicke Trumpy Granquist, Acting Chief Executive Officer at KBN.
Press Release
In 2019, KBN granted 628 new loans totalling NOK 53.8 billion. These loans financed investment in projects such as schools, health and care facilities, water and wastewater systems, and adaptations to climate change. KBN’s lending grew by 2.5% in 2019. KBN’s lending for green projects continued to grow strongly in 2019, and was responsible for approximately half of its total lending growth.
KBN’s profit for the year was above budget at NOK 1,283 million in 2019 as compared to NOK 1,496 million in 2018. Net interest income for 2019 was NOK 1,875 million, approximately in line with 2018. KBN’s return on equity after tax for 2019 was 9.5%, and in 2019 its equity increased by NOK 979 million.
For the full report
As the NOK depreciated over the quarter, KBN’s funding activities were more limited than expected at the start of the year. Throughout the quarter however, KBN was still active in both the USD and EUR benchmark markets, the USD FRN market and was also active in both GBP and AUD markets. On 5 March, KBN priced a new USD1.25 billion 5-year benchmark. The transaction enjoyed a broad distribution across both geographies and investor types with over 85 investors participating. A clear testament to the strong following that KBN enjoys across the global investor base. Central Bank and Official Institutions dominated demand, taking over 70% of the final allocations. In terms of geographical distribution, EMEA accounted for the largest region with 53%.
“We are extremely satisfied with timing and outcome of this trade, given an almost unprecedented volatile market backdrop this is one of the best executed KBN benchmark trades ever, a big thank you to everyone involved”, says Thomas Møller, Head of Funding & IR at KBN.
Press Release
On 6 February, KBN completed its first Tap of an outstanding EUR benchmark. The reopening of the outstanding EUR 1billion Oct 2029 bond saw 31 investors participate and generated a book of over EUR 600 million. The EUR 350 million tap was subsequently priced at MS+4 bps, 1bp inside initial guidance.
Other funding highlights for Q1 included a new USD 750 million February 2022 FRN and GBP 250 million December 2024 line. These trades, both issued on 14 January, were heavily oversubscribed. KBN also tapped its outstanding February 2025 USD Green Bond by USD 100 million, to bring the outstanding size of this Green Bond to USD 700 million.
Funding forecast
Based on current exchange rates, KBN expects its 2020 Funding Programme to be approximately USD 8bn equivalent. As the coronavirus and its affects play out over the course of the year, this could be revised upwards as borrowing requirements of the local governments increase.
As of now, KBN foresees another 2 benchmark transactions during 2020 with a maturity focus of 3-10 years. These will be focused in either EUR or USD. KBN will continue its funding activity looking for opportunities in the public markets in general, while keeping focus on the private placement and retail markets.
KBN also plans to remain active in the public Green Bond market during the year looking at both Taps on existing Green bonds and new Green bond issuance.
The KBN Funding Team