INVESTORS BET RABOBANK WILL BE AROUND IN 100 YEARS / THE FINANCIAL TIMES ( RECOMMENDED READING )

Investors bet Rabobank will be around in 100 years

By Aline van Duyn in New York

Published: September 14 2010 23:29

Rabobank, the Dutch bank that has been in business for 110 years, has sold $350m of debt to investors who are betting that it will be around for another century.

The sale on Tuesday of the 100-year bonds, the second such long-dated debt deal sold in the US market in recent months, reflects the desire by investors for increased yield as doubts about economic growth keep official interest rates at historic lows.

It is the first time a bank has sold senior bonds with such a long maturity, and reflects the stability of Rabobank’s triple A credit ratings despite jitters about banks’ creditworthiness two years after Lehman Brothers filed for bankruptcy.

For Rabobank, the sale of 100-year bonds paying a coupon of 5.8 per cent allows it to lock in low funding costs for a long period.

“The environment is such right now that investors are looking for incremental yield while remaining in relatively safe investments,” Jonny Fine, head of US investment-grade syndicate at Goldman Sachs, which managed the deal, said.

The strong demand for bonds sold by companies has led to a flood of new debt issuance this year.

The 100-year bonds are bought by a very small group of investors, such as insurance groups seeking to match their liabilities.

Mr Fine said the potential investor base for the Rabobank 100-year bond was 20 to 25 investors, compared with a likely buyer base of up to 200 investors if the bank was selling 10-year bonds.

Very long-dated debt is illiquid, and mostly bought by investors who plan to hold it until it is repaid.

With interest rates at historic lows – the US 30-year Treasury bond yield is at 3.8 per cent – investors have tried to find ways to increase returns.

Some have moved into corporate bonds with lower credit ratings and some have extended the maturity of debt. This contrasts with behaviour before the financial crisis, when yield was sought by buying complex securities with high credit ratings.

Many of these triple A structured finance deals backed by mortgages lost their top ratings and much value.

Goldman Sachs said the average 30-year Treasury yield over the past 20 years was 5.83 per cent, highlighting that, by historical standards, the interest paid by Rabobank was low.

Mr Fine said that he expected some more 100-year deals this year.

Last month US rail company Norfolk Southern sold $250m of 100-year bonds.

Copyright The Financial Times Limited 2010