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KfW´s Capital Market Activities in 2004
March 2004.
up.dateNews for Investors.
e.ditorial
Dear Readers,
In the year 2003 the KfW Banking Group wasmarked by internal structural changes inconsequence of the amendment of the KfWLaw. The lending business of the formerDeutsche Ausgleichsbank (DtA) was success-fully integrated into KfW. We saw thespinning–off of KfW’s export and projectfinance business into the new KfW IPEX-Bank,which was launched as a “bank-in-the-bank”.On January 1, 2004 the kick-off was givenfor a four-year transition period at the end ofwhich the bank will be a legally independentsubsidiary (January 1, 2008).In the year 2004 the repositioned KfWBanking Group will focus on the develop-ment of its lending and promotional pro-grammes. We expect a funding volume ofabout EUR 50 to 55 billion.
Given a funding volume of EUR 48.6 billionplus EUR 2.1 billion in credit-linked notesissued under our synthetic securitisationprogrammes, the year 2003 was again con-cluded very successfully. We started off theyear 2004 with two 5-year benchmark bondsin euros and US-dollars and have issued anumber of other public bonds and bondincreases.In this edition of up.date we have compiledsome facts and figures on our long-term fun-ding and on our plans for the year 2004.
Since the end of January we have begun toissue „KfW ParNotes“, which are a productspecifically designed for European retailinvestors. The notes are issued on a weeklybasis at current market conditions and areeasy to assess for the investor. A detaileddescription will be given below.
At the end of January, as in every year, theKfW Banking Group presented first figureson the business development in the year2003. You will find some extracts in the“News Ticker”.
In conclusion, I would like to inform you ofour new newsletter service. In the future wewill be able to inform you swiftly aboutimportant news and developments by send-ing a short e-mail. You may register with ournewsletter service on our homepagehttp://www.kfw.de under Investor Relations /Newsletter.
Enjoy the reading!
Gerhard LewarkTreasurer der KfW
KEY FIGURES FOR THE KFW BANKING GROUP
(in EUR billion)
Differences in the totals are due to rounding.
1 For the purpose of comparison, the figures of DtA for the years 2001 and 2002 have been added ex post facto.2 As Sptember 1, 2003, the KfW SME Programme and the DtA Start-up Programme were combined to create a
new product - the “Unternehmerkredit”, or entrepreneurial loan - including the variants Leasing, Abroad, Working Capital, and GuW Loans (start-up and growth financing).
3 Excluding loan to the Poverty Reduction and Growth Facility of the IMF (2001: EUR 1,430 million).4 Included in the total financing volume as comprehensive support by the KfW Bankengruppe (KfW Banking Group).5 Preliminary balance-sheet total before certification by the auditor.
I. KfW Mittelstandsbank (KfW SME Bank) 10,8 9,1 9,1
II. KfW Förderbank (KfW Promotional Bank) 17,6 20,4 27,7
III.KfW IPEX-Bank 12,5 10,4 11,5
IV.KfW Entwicklungsbank (KfW Development Bank) 1,63 1,3 1,6
V. DEG 0,4 0,5 0,5
Loan financing 9,6 8,4 7,8of which Unternehmerkredit2 7,8 5,7 4,7
Global loans within Germany/trade industry — 1,3 2,0Mezzanine financing 0,4 0,3 1,0Equity financing 0,8 0,4 0,3
Housing investments 8,4 10,3 15,4of which Global loans within Germany/housing industry — 1,4 3,8
Education 0,2 0,7 0,8Municipal infrastructure 3,2 3,0 4,5Environmental investments 4,2 3,7 4,0
Global loans outside Germany 1,5 1,1 1,4
Global credit lines to special state credit institutions — 1,6 1,5(Landesförderinstitute)
of which Promise 2,7 7,8 3,5Provide 2,5 12,3 18,4
Industry, telekommunications, raw materials 3,6 4,3 3,7Energy, environmental technology 2,4 1,5 1,9Transport and transport infrastructure 6,3 4,6 5,9
Securitizations 5,2 20,1 21,9
Investment finance in Germany and Europe 33,7 49,6 58,6
Total financing volume 48,33 61,7 72,3
Funds raised 38,6 53,9 50,7
Group balance-sheet total 294 304 3145
Environmental and climate protection4 6,9 6,1 7,4
20011 20021 20031
In the year 2003, too, the Euro and US-dollarbenchmark programmes were a major pillar ofKfW’s capital market activities accounting forapproximately 40% of the funding volume.Since their launch in 2001 they have developedinto a real surrogate for sovereign bonds and –as evidenced by the start of the year 2004 – canbe placed any time also in a volatile environment.
Under the benchmark programmes a totalvolume in the equivalent of EUR 20.5 billionwas issued in 2003. The Euro BenchmarkProgramme accounted for EUR 15 billion of thisamount and the US $ Program for USD 6 billion.
Roughly one third of KfW’s funding require-ment was covered by other public bonds. Themost prominent issues were the first large-volume callable bond for EUR 1 billion, the broadlynoticed EUR 5 billion KfW bonds exchangeableinto shares of Deutsche Telekom AG and theEUR 1.15 billion KfW bonds exchangeable intoshares of Deutsche Post AG (value date inJanuary, 2004).
Not so much the center of focus, but just asimportant for KfW, are the tailor-made privateplacements. In this segment we raised funds inthe equivalent of around EUR 11 billion in 2003.These private placements are a combination ofhighest credit quality and fast reaction to markettrends and as such meet with growing interestfrom investors.
With these three main pillars KfW has beenable to achieve a first-class standing and forthis reason the year 2004 will be marked, aboveall, by continuity. For the current year we expecta continued high funding requirement of alto-gether EUR 50 to 55 billion. As in 2003, KfWintends to issue bonds worth at least EUR 20billion under the two benchmark programmes.We are planning again to launch three Eurobenchmark bonds, one of which with a 5-yearterm and one with a 10-year term. The mini-mum issue amounts will be EUR 5 billion formaturities of up to 5 years and EUR 3 billion forlonger maturities. Increases, if any, will amountto at least EUR 1 billion per transaction. Thisslight modification allows us to adjust our bondoffers to demand from investors.
Successful Course Pursued in the Capital Market in 2003 andContinuity in 2004!
As for our US$ Programme, as in the past,the bonds issued will have a minimum amountof USD 3 billion for maturities of up to 5 yearsand a minimum of USD 2 billion for longermaturities. Increases will also have a volume ofat least USD 1 billion.
As regards the different currencies in whichwe issue, we will continue the very balancedtapping of the international capital markets ofthe last years. As far as we can say today, weintend to raise 40 % to 50 % in Euro, 35 % to45 % in US dollar and 10 % to 15 % in other
KfW´s funding in 2003 by currencies
Currency in EUR bn in %
Euro 27.2 53.7US dollar 16.4 32.3Japanese yen 3.9 7.7Pound sterling 1.7 3.3Other 1.5 3.0
Total 50.7 100.0
KfW´s funding in 2003 by instruments
currencies. But depending on variable factors,such as exchange rates, these plans might bealtered in the course of the year.
in EUR bn in %
Bonds and notes 48.2 95.1of which: benchmark bonds 20.5 40.4of which: other public bonds 12.0 23.7of which: bonds exchangeable into 5.0 9.9
shares of Dt. Telekom AG of which: private placements 10.7 21.1
Loans 2.5 4.9of which: credit-linked notes 2.1 4.1of which: other 0.4 0.8
Total 50.7 100.0
this group of investors a direct and permanentaccess to the primary market. In addition, theymeet the demands of retail investors becausethey are transparent and easy to assess. As allother bonds and notes issued by KfW, theParNotes are also guaranteed by the FederalRepublic of Germany and, thus, offer privateinvestors highest security.
The weekly issue of KfW ParNotes is im-plemented via the internet platform ”COINS” ofDeutsche Bank AG. Besides Deutsche Bank AG, DZBank in the cooperative sector and WestLB inthe savings bank sector have been commissioned
with selling KfW ParNotes. At the European levelKfW has so far cooperated with ABN Amro,Barclays, CSFB and UBS. Customers of othercredit institutions also have the opportunity tobuy KfW ParNotes since every bank may registerwith the COINS platform and, thus, may directlyorder ParNotes for its customers. Any interestedretail investors should contact the client advisersof the banks and savings banks for further infor-mation. It is not possible for retail investors toorder KfW ParNotes directly from the COINSplatform or from the KfW Banking Group.
Under this new programme KfW will offer retailinvestors at least one issue of notes at currentmarket conditions every week. KfW ParNotes areissued every Monday and may be subscribed ina denomination of EUR 1,000 until Friday noonof that week. The respective issue prices and yieldsfixed on Monday stay constant over the week,which means sufficient scope for decision-makingand high planning reliability for investors. Theweekly issue volume of the ParNotes depends onthe subscription orders received so that everyinvestor is allocated the full number and amount ofKfW ParNotes requested. Payment date for the sub-scribed notes is Wednesday of the following week.
With its ParNotes KfW ventures into newterritory. So far, KfW bonds were not specificallydirected at European retail investors. The par-ticipation of private investors in KfW bench-mark issues and other public placements wasrather moderate. In general, public issues weremostly placed with institutional investors andprivate investors had to buy notes in the sec-ondary market. Against this background and inview of the expectation that private investorswill increasingly demand fixed-income securi-ties in the next few years, KfW ParNotes offer
KW ParNotes are an experiment in tworespects: First, KfW enters new territory by issuingnotes exclusively for retail investors and, second,the ParNotes are a new product in the Europeancapital market. Thus, for the time being it is difficultto make any statement about the volumes ofKfW ParNotes to be issued. However, we candefinitely say that in the future as well the lion’sshare of KfW’s funding volume will be raised inthe capital market with the instruments we haveused up to now.
Further information is available underwww.kfw.de in the Investor Relations section.
KfW expands its range of instruments: Since January 2004 KfWParNotes are issued on a weekly basis
MONDAY
• KfW determines the details of the current issue of KfW ParNotes
• The subscription period starts
MONDAY- FRIDAY
Subscription orders are colleted via the COINS trading platform
Monday Wednesday FridayTuesday Thursday
WEDNESDAY
• Payment date for ParNotes issued in the previous week (T+3)
FRIDAY
• The subscription period ends at noon• The volume of the issue is determined
on the basis of the final number of orders placed
KfW ParNotes: Weekly Procedure
EWSTICKER + + + FROM THE NEWSTICKER + + + FROM THE NEWSTICKER + + + FR
KER + + + FROM THE NEWSTICKER + + + FROM THE NEWSTICKER + + + FROM
DYNAMIC DEVELOPMENT OFPROMOTIONAL LOANS IN GERMANY
The volume of commitments in the field ofinvestment finance in Germany and Europereached a total of EUR 58.6 billion in the year2003, marking an increase over the prior year ofjust under one-fifth. Above all promotionallending in Germany saw a significant rise.Compared to the commitment figures of KfWand DtA in 2002, lending increased by 26.2% toEUR 33.8 billion. The area of housing finance wasthe main contributing factor to this positivedevelopment.
KFW IPEX-BANKKfW IPEX-Bank combines the business areas ofproject and corporate finance in Germany andinternational export and project finance. Sincethe beginning of 2004 KfW IPEX-Bank has startedto operate as a legally dependent ‘bank withinthe bank’. As from the year 2008 it will be alegally independent subsidiary of the KfW BankingGroup and will be subject to the German BankingAct (KWG) and to banking supervisory laws.
At the end of 2003 new commitments madeby KfW IPEX-Bank amounted to EUR 11.5 billion,EUR 6.1 billion of which were for project and cor-porate financings in Germany and EUR 5.4 billionfor projects in other countries.
SYNTHETIC SECURITIZATIONIn 2003 commercial loans of EUR 3.5 billion weresecuritised under the PROMISE securitisationplatform (2002: EUR 7.7 billion).
In addition, housing loans with a total volumeof EUR 18.4 billion were securitised under thePROVIDE securitisation programme (2002: EUR12.3 billion).
SUCCESSFUL CONTINUATION OFTHE PRIVATISATION OF
GOVERNMENT HOLDINGS In December KfW continued the privatisation ofDeutsche Post AG by bringing a combination ofa share placement and an exchangeable bondplacement onto the capital market. The transactionwith a total volume of EUR 2.15 billion wasdirected at institutional investors and generatedhigh demand. For the first time, KfW used the so-called ‘accelerated bookbuilding’ method for thesale of the shares, which it had acquired from theGerman government under a holding arrangement.5.7% of the share capital of Deutsche Post AGworth EUR 1 billion was placed on the market. Thebonds exchangeable into Deutsche Post shares hada volume of EUR 1.15 billion and a term of 3 years.
Following the issue of KfW's EUR 5 billionbonds exchangeable into shares of DeutscheTelekom, which won the IFR Award 2003 for thebest ‘European Equity-Linked Issue of the Year’,this is yet another innovative step in the area ofprivatisation.
In November 2003 KfW again acquired largepackages of Deutsche Post and Deutsche Telekomshares for a purchase price of EUR 5.5 billionfrom the German government.
TRUE SALE INITIATIVEIn December 2003 the True Sale Initiative (TSI),which is a joint undertaking by cooperativebanks, commercial banks, the Sparkassen-Finanzgruppe and the KfW Banking Group, laiddown the structure of the planned platform,under which true sale securitisations can becarried out under German law in the future.Currently TSI works on the swift implementationof this business model.
ROM THE
E
Quality
Transparency Liquidity Performance
März
WHAT OUR BONDS STAND FOR.
KfW BankengruppePalmengartenstraße 5-9, 60325 Frankfurt am Main
Phone +49 69 7431-0, Fax +49 69 7431-2944
www.kfw.de
Investor RelationsHorst Seissinger
Phone +49 69 7431-2222, Fax +49 69 7431-2193
e-Mail: [email protected]
Press Office Capital Markets:Nathalie Drücke
Phone +49 69 7431-2098, Fax +49 69 7431-3266
e-Mail: [email protected]
