Navigating the labyrinth
The UK bond market was beset by a series of challenges in 2023 that combined to create a less than stable backdrop for issuance. For those on the outside, this represented a labyrinth seemingly impossible to navigate. But for those with the relevant expertise and experience, it was an opportunity to shine. NatWest Markets is IFR’s Sterling Bond House of the Year.
While high inflation, rates volatility and relatively weak economic growth prospects made for tricky conditions in 2023’s sterling bond sector, there was also the chance to showcase capabilities long in the making.
“The time to show that strength is when markets are tough,” said Alexandra Miani, head of corporate coverage, derivatives and financing solutions. “Clients have consistently relied on NatWest to navigate them through the heightened volatility and uncertainty, particularly in the sterling market.”
Indeed, it is not as if the bank is a stranger to the higher echelons of the lead management hierarchy in the sterling sector, having been a top-ranking player for many a year, something that was repeated during 2023, with hardly a week passing without a NatWest-led deal emerging.
“The truth is that it was challenging in many respects,” said Kerr Finlayson, head of frequent borrowers group syndicate. “What you have to have is a holistic view of the life cycle of a bond.”
But from public sector issuers, through corporates to financials, NatWest acted successfully across its client base, all while maintaining those ever-important conversations with the other side of the equation: investors. “The coin has two sides,” said Thomas Hansson, head of debt and financing solutions.
This resulted in continued success throughout the year, with NatWest leading the first Gilt syndication, three of the first four corporate deals and reopening trades for financial institutions both domestic and foreign following the collapse of Silicon Valley Bank and Credit Suisse.
As with any smaller market, those with the leading franchises boast similar achievements, so differentiating attributes is key to success. For its part, NatWest leveraged what it calls the "credit vertical", an approach which fosters and maintains close collaboration between the various teams involved to identify emerging trends and how and when to best raise liquidity for clients. It also involves an integrated primary and secondary platform that maximises investor access.
This is a deliberate long-term strategy to align interests, reporting lines and key priorities across teams linked to the credit market, said Miani.
On the corporate side, NatWest was instrumental in reopening the hybrid sector after a two-year hiatus with a sole structuring role on Vattenfall’s £250m 60.25-year non-call 5.25 green deal, following this up with Vodafone’s £500m 63.25-year non-call 8.25. Investor conversations meant it was able to identify appetite for higher-beta product as a result of increased rates, the upshot also being cheaper funding for the issuers than was available in the euro market.
This access to information also enabled it to bring a number of inaugural visitors to the senior market: the likes of Suez, IDS, Volvo, Inchcape and CA Auto Bank.
In a utility sector that accounted for a considerable amount of the supply, in addition to Suez and Vattenfall, NatWest was active for clients from gas to electricity to the embattled UK water sector, working on some 16 deals. The last of these, Southern Water’s £450m 18-year sustainability bond, came to fruition despite several of the classic long-end buyers from the pension and insurance sector not participating. Using its credit vertical once more, NatWest identified alternative sources of demand and had four £100m-plus orders at the top of the book, said Miani.
The bank’s prowess in the financials space was also plain to see, from the relative security of covered bonds, through senior preferred and non-preferred bonds to subordinated paper. As would be expected, the issuer roster included domestic players such as TSB, Santander and various building societies, but also from across Europe and as far afield as Canada and Australia.
One area in which NatWest demonstrated its prowess in its home market in no uncertain terms was when it came to the challenger banks. The sector endured what head of FI syndicate Jacob Gilbert described as “a challenging year” as rates rose. For its part, NatWest was active on virtually every transaction.
A slew of sub-benchmark Tier 2 issues for the likes of Shawbrook, Hampshire Trust Bank, OSB Group and Secure Trust was complemented by senior trades for Virgin Money and Co-op Bank. The latter in fact featured in both senior and subordinated format, involving green bonds and liability management exercises along the way.
Add to that a public sector franchise that not only encompasses the larger issuers such as the DMO or the likes of the World Bank, KfW or the European Investment Bank but also lesser-seen names such as the African Development Bank, L-Bank or the Council of Europe Development Bank.
Perhaps CPP Investment Board, a recent convert to sterling issuance, sums it up: NatWest has been on all its transactions since spring 2020. There are many who understand why.
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