OREANDA-NEWS. KfW has priced its first Canadian dollar deal in 2013 and its largest Canadian dollar bond in a single transaction ever. The 5-year deal with a 1.875% coupon also represents the largest Canadian dollar deal from a non-Canadian issuer ever.

After having attracted strong indications of interest of more than CAD 400m at initial price thoughts of mid-swaps plus 10 bps area, books were opened at 9am CET with a spread of 9 bps area over mid-swaps. The orderbook grew rapidly to CAD 800 Mio after two hours of marketing and finally approached a size well in excess of CAD 1 bn. The size and quality of the book allowed KfW to price the deal with a record issuance volume of CAD 1 bn at the tight end of the initial price guidance at mid-swaps plus 9 bps. HSBC and RBC CM were lead managers on the deal.

The extremely high quality orderbook was driven by central bank demand with a portion of 77.9%. Asset managers took 14.2% and the remainder of 7.9% was taken by banks. Geographically the transaction enjoyed broad distribution with Asia taking 42.6%, Americas 36.9%, Europe 13.0% and MEA 7.5%.

The demand from international central banks in this deal was significant. The IMF recently published a survey on currency allocation plans of global reserve managers finding that amongst other currencies mainly Canadian dollars and Australian dollars as “non-traditional reserve currencies” are target for additional diversification – a trend observed for a while and affirmed by the survey. One main reason that drives the decision is the depth and liquidity of the underlying asset market. Hence liquidity is increasingly important for international investors like central banks.

The 5-year Canadian dollar transaction is the second record issuance from KfW in 2013 after a AUD 1 bn 5.5-year Kangaroo issue in January – the largest KfW Kangaroo ever in a single transaction with a record orderbook of over AUD 1.2 bn. In this transaction 48% was taken by central banks. “The success in these transactions is due to the high credit quality and the increasing need from reserve managers to diversify the currencies in their portfolios - especially currencies like Australian and Canadian dollars combine the higher returns with the requirement in the market for very liquid bonds” commented Dr. Braunig, member of the Managing Board of KfW and in charge of capital markets.

KfW Kangaroo bonds offer high liquidity as outstanding amounts in the full curve of 13 fixed rate lines with maturities from 2013 up to 2022 are between AUD 1 bn and AUD 2.65 bn. The turnover in secondary market activities is also high with the outstanding amount being turned over more than once a year. Market activity in Canadian dollar has been subdued in recent years; however KfW’s recent transaction marks a very liquid deal size. It could be the starting point for more regular and liquid issues in this market again.

“Allocation decisions of central banks are long-term decisions, therefore we do expect this trend to continue which puts KfW as an issuer of liquid bonds in various currencies in a very good position”, said Dr. Braunig.

KfW has raised EUR 32.9bn in 12 different currencies in 2013 year-to-date. The bonds are explicitly guaranteed by the Federal Republic of Germany.