Treasury Today Country Profiles in association with Citi

The name’s Bond. Alternative Bond.

Photo of a man with a gun imitating James Bond

Corporate funding comes in many forms. Tapping the alternative markets can prove highly effective. One Vienna-based global business takes Treasury Today through its current portfolio.

For Jan-Martin Nufer, Director Treasury and Funding at Vienna-based Borealis AG, a global provider of chemical and plastics solutions, 2012 was a record year for financing and re-financing activity. Across a number of markets it took in the region of €1.8 billion.

Borealis, which had sales of around €7.1 billion in 2011, currently has a gearing ratio of 41%. Its current and on-going programme of funding, which started back in 2009, saw it issue for the first time, in April 2010, a corporate bond transaction with a volume of €200m, with a tenor of seven years. This bond was placed to a large extent with Austrian private and institutional investors and is listed on the Vienna Stock Exchange. In June 2012, the company placed its second corporate bond – mainly in the Austrian retail market – with a volume of €125m, again with a tenor of seven years.

But in 2012 it also undertook a US private placement for $133m equivalent and a German private placement, a so-called alternative markets ‘Schuldschein’ issue, for €98m and $75m. In the re-financing space it has arranged a five-year €1 billion facility, and it has installed an asset backed securitisation (ABS) programme. The whole package was rounded up with “a little acquisition financing”, in terms of export credit agency-based finance, which is currently underway.

This “proactive” approach to funding, explains Nufer, is designed to meet a number of day-to-day requirements, including capex projects, M&A activities (one announced at the end of last year and heading towards completion), and the use of the favourable capital markets to potentially pre-finance the firm’s 2013 maturities. It is also used to re-finance by substituting old committed lines (such as a revolving credit facility), and for the roll-over of some funding such as the ABS programme, which has just been hauled into a new framework.

Driving the deals

New finance requirements within Borealis are approached from several angles. Firstly, from treasury, acting in accordance with a fairly “conservative” policy on how far in advance it wishes to refinance its maturing debt. This includes what Nufer refers to as the “backbone” bank finance usually being refinanced 12 months in advance. Secondly, it ties into the general business scope and so is directed by Borealis’ business and long-term liquidity planning. Thirdly, it will take its cue from project-based needs, so anything that comes from the M&A sphere or capex decisions for certain projects. “Lastly, we also have the element of dialogue with our shareholders and our board to see what an opportunistic timing might be for financing,” says Nufer.

In essence, treasury is charged with securing the best instruments for the company within its guiding framework, and alternative markets are a substantial part of its funding quest. “And this is essentially what we did in the course of 2012 with our suite of transactions.”

Making decisions on which instruments to use, and when, is a key part of the process, states Nufer. “This is where the value of long-term relationships with our banks comes in,” he says. The banks that have worked with the company, and in the industry, for many years are engaged “in continuous and frequent dialogue” with the team at Borealis. Open conversation, and “brainstorming sessions” have been responsible for the generation of new ideas around funding: the Schuldschein issue and the US private placement, for example, stemming from these conversations.

Look and learn

The process starts with Borealis’ treasury informing its panel of banks what it needs and how it might like to do that – and then it is over to those banks to highlight their individual strengths and to come up with their solutions. Being presented with ideas around, for example, specific local content funding in a certain country, then allows treasury to “cherry-pick” and structure the best packages, using the experience of the team combined with the wealth of information presented by each bank to pinpoint the most valid options at the time (led by the drivers mentioned above). The internal process of digesting all this information not only serves to educate the finance team further but also to inform the respective boards. Once a funding solution is accepted, the matter of timing and when best to go to market is addressed; again Nufer’s team are in direct conversation with the relevant banks and keep an eye on market developments.

The dialogue between bank and client is intended to deliver new funding instruments but there is a caveat, warns Nufer. Although Borealis’ banks are kept close, it’s apparent that he still sometimes needs to distinguish “between the usual sales pitch” and what is genuinely best for the company. However, he accepts that ultimately it is his task “to select the right instrument at the right time”.

The multitude of options in the alternative funding space seems to suggest that Borealis might need to be in a perpetual state of watchfulness to make any sense of it, but it is able to access a portfolio of up to 25 banks and from these Nufer feels he can “get a pretty decent picture” of the market. To this he can bring his own experience, market intelligence and that of his network of peers in the corporate finance and treasury world. “Once you have built up the know-how in the different markets, you are in a position to pick and choose, to combine and also switch between the different funding instruments.”

Planning plays a large part of any funding and, typically, in the long-term Nufer looks out on a three-year basis. This is supplemented by yearly planning, with micro-phases of “specific and very intensive” planning for each coming quarter. “We also need to take into consideration that the transactions we are talking about have a large span of preparation time, and time needed to execute those transactions.” If necessary, he notes, some deals can be carried out in just a few weeks, but some can take up to 11 months for preparation and execution. “The devil is usually in the detail here and this is where experience comes in,” he comments, affording particular attention to that detail when entering new jurisdictions. Understanding just how meticulous the preparation needs to be for some instruments does go some way to guiding how far it should be planned in advance.

Bank ideas

The creative response from banks as to what instruments may be used to raise debt varies. “It is a good mix of bread-and-butter ideas and the more fancy instruments that are probably one-offs used at a specific time,” notes Nufer. New ideas will usually be collaborative efforts, often sparked by the dialogue between bank and treasury.

Sometimes a bank will suggest a new form of debt or what may be “flavour of the moment” for an un-rated corporate seeking finance, and sometimes ideas are raised by Borealis, such as how it might feasibly exploit regions of high name-recognition in new debt capital markets. “It might be a wild idea, but we’ll ask if there is something out there in the market that the bank can do for us,” explains Nufer. The creative process, for him, is one of “educating the environment, proposing the instrument and the right timing, and then getting a realistic picture of what can be achieved”.

Rating over-rated

Wouldn’t it make raising finance cheaper and easier if Borealis were rated? For Nufer, a rating only makes sense if it would give him more volume or much better pricing. “We don’t necessarily need rating. We are aware that it may be a little bit more cumbersome, and in some markets not possible, to place certain instruments, but if I look at the rates we have been achieving I don’t feel we have been paying more by not being rated.”

Rated corporates can often secure larger deals, and so the question for him is, does he want to do such deals? Going solely to the Eurobond market and placing a benchmark deal means putting “a lot of eggs in one basket” in terms of financing volume. “Looking at my diversification, the maturity mix, the mix of different markets and possible combinations, and at the size of what we have been doing, I haven’t got the feeling that I’m missing anything by not having a rating.”

In order to have his level of control over debt, Nufer acknowledges that there has to be an investment of time and money. Investing into different markets often means looking at longer maturities, and overall initial set-up costs will be “a little bit higher”. “But once you have done that, you have at your disposal the tool set to pick and choose whenever the time is right for financing.”