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April 2008 | ifr special report | 3 NON-CORE BOND MARKETS ROUNDTABLE Non-core bond markets roundtable

IFR: Issuance in non-core currencies was again dominated by sovereign, supranational and agency borrowers over the course of the last year. Will this continue or will more banks look to get involved?

Sjaak-Jan Baars, Rabobank: I would assume they will, although maybe a small change to the question could be to say that the focus has so far been mainly on the Triple A sector, given that we are a bank and kind of a difficult case anyway, but in the last few years, we have always been in the top four or five issuers these currencies. Our experience is that there is demand

for our product that is just driven by the local currency and interest in FX exposure. Those investors want to be exposed to credit to a lesser extent and I think that is the main driver for the interest in the Triple A sector. For that reason, I think the interest in banks or lower-rated issuers will be a bit more limited.

IFR: Would you welcome an influx of new borrowers looking to take advantage of the market or is it something you want to keep to yourselves?

Horst Seissinger, KfW:We are always interested in competition, but we have to bear in mind that there are different types of investors. The international investors will continue to have a strong focus on the SSA sector and banks with a Triple A rating, whereas, when it comes to true local markets, I would expect the role of corporates could increase in the near future. We have a lot of corporates that have substantial funding needs in these markets. Therefore, I think the answer to this question is yes; for international investors we would expect that the advantage that the SSA sector enjoys to continue. If we look at local markets, I would expect that the trend towards corporates and other banks which are not Triple A rated will continue in the near future.

IFR: The question that begs asking as far as the local markets are concerned is “how deep is the investment base?” Is it fairly limited?

Horst Seissinger: It is difficult to see whether in all the emerging market currencies where we are active if there is also an opportunity for us to have a closer look at local investors. Definitely, there are certain regions in the world, regions of growth, where we do believe it makes a lot of sense to start to talk to local investors, to start to issue locally, whereas in other currencies we would expect that the demand for these currencies would be more or less driven by having a certain view on the currency or on the economy as a whole.

There are certain regions

in the world, regions of growth, where we do believe it makes a lot of sense to start to talk to local investors.

IFR: And from the investment banking side, are you seeing a greater appetite for credit?

Moti Jungreis, TD Securities: To go back to the actual question about pushing down the credit curve, right now is not the environment to do that: it might come back. There has been issuance in the Double A space in the last year, but not in the last three or six months. I think part of the problem is the lack of appetite of banks to underwrite risk. If you want to go and push the envelope, you have to be willing to take some underwriting risk. Right now, banks simply don’t want to

take anything that is under a Triple A, or maybe their own name. So, if it is JPMorgan that wants to issue their own name in Turkish lira, it is do-able if they feel that they have the amount [of demand] for it. But to ask, say, Deutsche Bank to underwrite JPMorgan, or TD to underwrite it, there would be a little more reluctance to do so unless they had strong demand from day one, which I would doubt right now. But in most of those currencies, you would be able to do a very successful placement of a Double A credit, but again, if the market turns around, of course…

IFR: And is the market likely to turn around?

Moti Jungreis: At one point it will, but we are not sure when.

IFR: The proportion of KfW’s funding conducted in the non-core markets was around 15% in 2006. Was the outcome the same in 2007?

Horst Seissinger: The proportion was around the same, although this year it may be a little bit less due to the market developments. But our focus is definitely to continue to be active in these currencies. There are still some currencies, some markets on our agenda, where we also intend to issue true local bonds, but I think if we discussed all the issues of our agenda from today’s point of view, there would be a lot of question marks. We have to assume that, at a certain stage, we will overcome this crisis and then these markets will pick up again. We want to be early into these markets, so therefore we continue to be active as far as it is possible.

IFR: And the EBRD has been active in developing the interbank markets in Romania most recently and elsewhere beforehand. Obviously, they remain integral to your funding requirements and are important to you.

Isabelle Laurent: Yes: we have two strokes in our emerging market currency

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