Eksportfinans on the up

Over the past three years, the third-party issuer of choice in the US for Wachovia, Merrill Lynch and many other firms is Norway's AAA-rated, government-backed Eksportfinans. Negin Janati of the Structured Products Association asks Soren Elbach, a director at the Norwegian export credit agency, about the secret of its success in the US

There are several big names that are looking to be the primary issuers of other firms' structured products, yet Eksportfinans is the clear leader - without even having an office in the US. How did you accomplish this?

First, through a relentless commitment to continually expanding our investor base via onsite personal presentations. And second, by leveraging our longstanding relationships with US banks' London and Tokyo offices. Of course, it helps us a lot having a US Civil War buff on the team, who traverses the country building and cultivating relationships. There's no doubt that my US history interests have been an icebreaker.

Tell us about your strategic plan to break into the US market. Did everything go according to plan?

No. On basis of a growing borrowing requirement, we needed to diversify our funding sources away from the dominant one, which was Japan, with knowledge of the US as the single largest capital market on the planet. In 2003, we undertook our very first investigative roadshow in the US to gauge interest and prepare the market for our SEC registration, which was finalised in June 2004. It was quite natural for us, as a part government-owned representative for Norway - arguably the world's richest country - to issue in the very top-tier issuer bracket. After that, our benchmark bond issues were in a global format.

We gained a lot of experience about investor type and temper, investment guidelines and policies, and so started to better understand what volumes could be achieved and how to position ourselves, etc. The follow-on from our benchmarks has been mind-blowing to us. Overall, we are very aware of the success of our US activities. I often ask myself the question: if not in the US, where would we have funded the same amount, from which investors and at which price?

What are the biggest challenges to winning market share in the US?

A couple. The documentation process - SEC filings, Sarbanes-Oxley and so on - are almost technical trade barriers. It can be overcome but it requires a lot of time, as well as plenty of money for auditors and lawyers. In addition, domestic firms have several decades of marketing history behind them. It takes a lot of elbow grease to break into that.

You have a strategic initiative called eFunding. What can you tell Structured Products about this effort?

First, many structured medium-term notes are copy-trades. That is, they have been done before, just with different pricing for the underlying assets. So it has bothered me for some time that we have so many people involved in the production process for each transaction. eFunding solves this by providing a documentation library with all agreed templates, and straight-through processing from start to finish.

Second, manual creation of documentation inevitably leads to errors. When you jack up the number of transactions (as we have done), you run the risk of lowering quality in production, because you must produce more volume. Also, drafts are usually commented on both by the borrower and arranger, and relying on all those views simply wasn't rational.

Third, many thousand times a day an investor expresses a desire to a salesperson to make an investment. How do you to put Eksportfinans right in the middle of that conversation? With eFunding, dealers now can log on 24/7 and communicate with Eksportfinans.

And finally, because we used to receive transaction-related communications from dealers in many different ways, we needed to streamline this to just one channel - and eFunding provides that.

In essence, eFunding is a web-based platform for engaging our dealers online and issuing and documenting structured MTNs. eFunding must simplify the funding process considerably for all parties involved.

Why does the US lag behind other regions in structured products?

Behind; ahead; who came first? Well, there's a lot of culture here. In the US, the stock market has a much larger following and many investors are active here - so less of them look at the structured note market. But the higher the volatility there is in the stock market, the more issuance there will be in the structured note markets. I don't really note who's ahead or who's behind. The window's open, and then we jump.

What are you up to outside of the US market?

The US market comprises some 35-40% of our total funding. That means more than half is raised outside the country. So we spend a lot of time segmenting, promoting and closing deals in other geographies.

What's next for Eksportfinans?

Well, we've increased our borrowing requirements to between $15 billion and $16 billion this year, up from around $11 billion. So that's quite a bit. We aim to raise half of the increase in the US market, but we're aiming for other markets too, established ones as well as new ones. Originally, we were planning to do two benchmark transactions - we'll now be doing four. And it will be the same story in 2008.