What I’ve learnt: updating an EMTN programme

Updating an EMTN programme requires an eye for detail and strong project-management skills, Sander de Vries tells Matt Packer

Regular readers of The Treasurer will have seen from our coverage of green finance that the energy market is shifting from traditional processes to cleaner alternatives – a transition that is affecting scores of non-financial corporates in the sector.

Dutch firm Nederlandse Gasunie – the national provider of gas infrastructure – is no exception. “The Dutch government is encouraging the use of green energy, and has set a target to bring down carbon dioxide emissions by almost 50% by 2030,” says interim treasurer Sander de Vries. “The use of natural gas will gradually make space for other energy forms, as soon as these are available. Solar and wind energy – along with renewable gases such as biogas and hydrogen – will play an increasing role in the future green energy supply.”

As such, he explains, “we are looking at how the current infrastructure could be utilised for new energy sources like these, which we can transport within the existing pipelines. And these developments sometimes go quickly: one of our pipelines in the south of the Netherlands will have hydrogen transmission under way by the end of this year.”

Those initiatives are just a slice of the total number of projects the company operates at any one time – many of which are joint ventures with other industry players, together with players outside the industry. Indeed, the energy landscape is becoming more and more intertwined with sustainable initiatives in other sectors.

A steep curve

It all makes for a complex web of alliances and partnerships around Gasunie – a firm whose size is conveyed by its basic numbers: an asset base of around €9.8bn, a debt base of €3.4bn and annual revenue of €1.2bn.

“I’m responsible for ensuring that Gasunie has enough access to both the short-term and long-term funding market,” de Vries says, “so the company has a variety of funding options.”

Gasunie uses three different main funding sources: a revolving credit facility (RCF) financed by a syndicate of banks; loans from the European Investment Bank (EIB); and something that has been occupying a great deal of de Vries’ time – a Euro Medium Term Note (EMTN) programme, which underpins $2.5bn of the company’s debt base.

As an interim treasurer, working on secondment from Zanders Treasury & Finance Solutions, de Vries has faced a steep learning curve during his months at Gasunie.

“As acting manager of front-office treasury,” he says, “I need to check whether the funding structures of our various initiatives are aligned with the provisions of the relevant financing documents. In the rare occasion that this is not the case, and the senior team still thinks we should utilise a product-specific funding structure, then a consent request is required.

“So we must ask our banks to approve a particular funding structure if it is not completely aligned with the documentation of – for example – the RCF.”

He notes: “That’s a process I must be on top of – and if we do decide to approach the banks for approval, then I must check how the consent request should be stated: ‘What, precisely, do we want the banks to authorise?’ From that point, it’s a matter of ensuring that everything flows smoothly.”

Seeking alignment

In addition to his requirement to have a firm grasp on the fine detail of its structure and activities, de Vries has been leading an update of the documentation behind the EMTN programme, to ensure that the firm can take full advantage of this funding source in the near future – should it choose to do so. So, how does the EMTN programme fit into this picture?

“To be able to issue a bond,” de Vries explains, “a programme should be up to date. The last update was done in 2016, and a programme is valid for just one year. After that, another update is required. So that is one of the main things I have been responsible for this year.”

De Vries notes: “During the update – which is a really interesting process – a lot of alignment was required between all the different external and internal parties. External parties included the dealer counsel, plus our own legal counsel – then the auditor had to give approval through the issuance of a comfort letter, and our national regulator the Authority for the Financial Markets (AFM) had to approve it.

“At the same time, I was consulting with internal department heads. They had to contribute not just to the company description, but to an overall assessment of risk factors, too. In the end, it’s the CFO’s responsibility to ensure that all relevant risk factors are properly included in the documentation.”

That second part of the alignment process proved to be somewhat challenging. “We did the update over the summer,” de Vries explains, “and there were time restrictions around the availability of our representatives, who were taking holidays at that time. Initially, the process was begun earlier this year, but due to internal developments, the process was postponed. As a result, we had a tight deadline, and no option to delay, so that added an element of pressure to the logistics of signing off the internal contributions.

“As you can imagine, a lot of project management skills were required to conclude the update within the set timeline.”

Unknown elements

Amid a process that was hardly short of organisational tests, there was yet another layer of complexity to deal with. As de Vries notes: “We updated the EMTN programme as regulatory changes emerged around the Euribor and Libor benchmarks. In the near future, those benchmarks will no longer be there.

“There was quite some uncertainty – not just within the AFM, but our legal counsel, too – about how to formulate and account for those changes within the EMTN programme, because not much was known about those developments at that time.”

For de Vries, that also marked a learning moment. “At some point,” he says, “you get confronted with certain unknowns. But in the end, you still need to take a decision on how to factor it into the documentation – even if you are up against tight deadlines.

“So, at the start of these big projects, you must accept that you could always come across unanticipated elements that could make the process, let’s say, ‘extra-interesting’.”

Following that flurry of activity around the update, then, what stage is Gasunie at now with respect to its EMTN programme?

“The company is now in the final stage of deciding whether, and how, funding needs to be attracted,” de Vries says. “Treasury is now in the advising role, and in the end the CFO must make the call. Depending upon how that decision turns out, treasury may get the assignment from the CFO to attract the relevant funding.”

And how about de Vries himself?

“After their previous front-office treasury manager changed jobs,” he says, “Gasunie has now found a permanent replacement. One of my responsibilities now is to train her, so that she will be able to fulfil that role independently. She has already started, so we are in the handover process now. At the end of the year, I will roll out.”

De Vries’ key lessons

  1. Pay strict attention to the contents of the documents behind each funding initiative. You really need to know what’s in there, and how the various funding documents are interlinked with each other, to understand whether the company is complying with all the relevant provisions when new initiates are implemented.
  2. Securing the availability of key internal stakeholders during complex sign-off procedures is a critical stage to take into account – especially during the summer, when so many execs are on holiday. Identify which people need to sign the documentation, then pick a date and block out the agendas of the various representatives to ensure that when you are finalising the process, the paperwork can be signed efficiently.
  3. Thorough internal preparation will help smooth the external part of the process. With our EMTN update, all the documentation was fully drafted and signed off before we approached the external parties. That helped to enhance the overall efficiency of the external element.
  4. During any process such as this, keep alert to regulatory shifts that may affect the funding method you are exploring. Harness all the expertise of your internal and external colleagues to ensure that any shifts are factored into your documentation.

Above all

“Out of all those, I would stress that having an in-depth knowledge of the provisions in financing documentation is of greatest importance. You can then apply that knowledge to fresh circumstances when new initiatives are launched.”

About the author

Matt Packer is a freelance business, finance and leadership journalist

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