Kalin Anev Janse in interview with TD Securities 5x10 Podcast

Interviews
ESM
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ESM Chief Financial Officer Kalin Anev Janse
Discussants Richard Kelly, Head of Global Strategy, TD Securities, and Laura Quinn, Managing Director and Head of Primary Markets, TD Securities on 27 October 2021
Language: English
Publication date: 9 December 2021.

Transcript:

Richard Kelly: Thank you everyone for joining us for the next installment of our 5 by 10 Issuers podcast series.
I'm really pleased to be joined today by Laura Quinn, Managing Director and Head of Primary Markets for TD Securities Dublin and Kalin Anev Janse, Chief Financial Officer for the European Stability Mechanism or ESM.
It certainly feels like we are moving to the next stage of the recovery. We're seeing that return to normality move at different paces in different places. And that's creating the need for policies to adjust, I think as well as some broader rethink about what's the best way to adapt for the future that maybe wasn't even on the radar previously. So today we wanted to delve into how the ESM is looking at their priorities and goals for the upcoming year, as we take that next step forward. So with that I will hand things over to Laura Quinn to introduce our guest.
Laura Quinn: Thanks Richard and thanks Kalin for joining us today.
Kalin runs the Funding and Investor Relations team for the European Stability Mechanism. He is the CFO and a board member of the ESM. He is responsible for €300 billion of debt outstanding and this year alone his team has raised €25 billion of funding.
So Kalin, no one could have predicted the COVID pandemic, and thankfully we're in a much stronger position today than we were 12 months ago, thanks to the vaccines. But this did have an impact on financial markets, particularly in Q1 2020. With this in mind, I'm interested to know what you think are the biggest risks facing capital markets on a 12-month view?
Kalin Anev Janse: Thanks Laura, and I think it's a great question to start off with. We responded quite quickly to this crisis in Europe, from a notary point of view and from a fiscal point of view. We had a first response just eight weeks after the pandemic started, approved in April 2020 of €540 billion, of which the ESM represents €240 billion. And then last summer we had the €750 billion Next Generation EU. It impressed markets - according to many Europe really outperformed. Bloomberg even speaks today that the European model is a success, how it responded to the crisis from a vaccine point of view as you refer to, but also from a fiscal and monetary point of view. So, we're in a good position in Europe, but of course there are risks and we need to be very careful how we emerge from this crisis.
I am optimistic that the €750 billion will be used well. We also have the ESM PCS (Pandemic Crisis Support) available until the end of 2022, but we need to be very careful how we get out of this crisis, so I'm carefully optimistic and I'm sure we'll get there. But getting out of the crisis is always the trickiest part.
Richard Kelly: Thanks Kalin, and maybe if we could look at the other side of that, Laura asked about the biggest risks, but with some of the larger budgets with some of the ability to think outside of the box in a number of areas, what do you see as the biggest opportunities for ESM over the next 12 months?
Is there anything in the pipeline that you're particularly excited about from a funding perspective?
Kalin Anev Janse: The biggest change for the ESM is that we have a new mandate. In the midst of the crisis, our governments, the 19 countries of the eurozone, approved the upgrade of my institution. So at the moment it is going to all the different capitals in the euro area and it will be live in 2022, so next year.
It will give us a new lending instrument, so we will become the backstop for banks via the Single Resolution Fund. We will start monitoring all the 19 countries of the eurozone. If there will be a new crisis, no troika , but in tandem, the European Commission and the ESM, and we will be assessing more deeply the debt, sustainability, and repayment capacity of the different countries of the eurozone.
And last but not least, we will play a bigger role in case of disputes between the private sector and the public sector, in case of our debt issues.
Now you see some of this new mandate coming up in the media. We published recently a piece that we believe that The Economic and Monetary Union's rules have to change and that we could move away from the 60% debt to GDP and move to 100% debt to GDP because the world has changed. But we should stick for example, to the 3% deficit.
From a funding point of view, next year we will remain a regular player in the market. We will have €20 to €30 billion in issuance. We want to keep a large investor base and we look forward to doing roadshows more and meet investors physically.
Richard Kelly: Thanks, maybe if I could follow up a little bit. You mentioned the €20 to €30 billion in issuance next year. Are there any other details you can provide for global investors in terms of any of those plans for the 2022 funding outlook, any new projects or strategic focuses that that you're really trying to move into?
Kalin Anev Janse: Absolutely yes, and I think for investors the details are what matters. We will do a total of €26 billion to be precise next year. €18 billion for the EFSF, €8 billion for the ESM. We will have our regular bill program, so the 3, 6 and 12 months, and we will keep issuing once a year in U.S. dollars.
For 2022 also the ESM Pandemic Crisis Support of €240 billion is still out there. Government still can trigger it. So the question whether it's used is if spreads start to widen. So most governments look at ESM as a credit line that they can trigger if spreads are too wide, which they currently are not due to the monetary response. So if we see spreads widening there is a higher chance that the €240 billion is used by some of our Member States. And then the new mandate, the backstop to the Single Resolution Fund we will engage more with investors to explain what the risks are that are coming out of Europe, but also the opportunity. And let's not forget we have another €410 billion of available capacity. So if the aftermath of this crisis will get us into symmetric shocks we are there to help.
Richard Kelly: Thanks and I wanted to look at ESG. You mentioned risks and opportunities, and there's probably no better example of turning a crisis into an opportunity than what's been a significant acceleration on the ESG front globally.
So I wonder when you're looking at it as a global SSA issuer, what do you see as some of the biggest risks for the further development of the green and social bond markets as we move into 2022 and beyond?
Kalin Anev Janse: The biggest risk for me is definitely greenwashing. The market at the moment is extremely hot. We've seen the ESG Bond market in October 2021 move to $2 trillion just eleven months after it crossed $1 trillion. But it took us 13 years to get to that first trillion. So we see a huge amount of issuances coming out.
But of course some are more green than others, and I think what is important for 2022 is to make sure that what goes out as green or social or governance, so E, S or G based issuance, that they are really ES&G, and I think that the EU taxonomy, which is by far the most advanced regulation out there globally is trying to help that, and I hope other parts in the world will be following that leadership of Europe.
Richard Kelly: So maybe if we could bring this back to Europe to close out.
I think you know that the ESM has played such a pivotal role bringing stability and moving through crisis over the last decade. I think we can look at Next Gen EU as the EU's next arm of trying to further broaden out what we're seeing across European institutions and how they can support recovery in the region.
I think the one question we increasingly see, and it would be great to get your perspective, is do you see a situation where the large EU institutions of ESM, EIB, EU, are able to bring those funding capabilities and consolidate and merge them at any time in the future?
Kalin Anev Janse: Thanks for this question and I often get it the last couple of months, and the answer is no. We all have different purposes, shareholdings and structures.
The ESM is the only eurozone institution with 19 shareholders. The European Investment Bank is an MDB, a Multilateral Development Bank, financing projects. We're (ESM) financing countries. And the EU is a supranational with the 27 countries, so an EU wide institution. We see this setup in countries as well. If I look at Germany there's no merger between the Bund and KFW. In my own country, the Netherlands, the NWB, BNG and the State are also issuing separately into the market. So what is important I think for investors though, is that they see those issuers as similar, even though they are not the same. So together we're bringing around €800 billion of safe assets from Europe into the market in 2020, and this with all the new crisis response, will be moving close to €2 trillion in the coming years. So we will have real deep European safe assets in the market out of the three institutions.
And also, as we are European citizens, at least my shareholders, representing more than 200 million Europeans, for them it doesn't really matter which institution is issuing. For them it matters that Europe is solving problems, and I think that's what the three institutions are doing.
And finally, and one point for investors, because they are the ones that listen to this. For them, the spreads and the active switches that happen between the three institutions is actually very good to create liquidity and they flatten the curves or they take opportunities of that, so from trading point of view, I think it's great that we have these three institutions, so it's a win-win, I would say.
Laura Quinn: Thanks Kalin, that's a great note to end our podcast today. I want to thank you very much for joining us.
It's been a very insightful conversation and it's fantastic to hear how optimistic you are about markets and for the ESM.
Kalin Anev Janse: Thank you, it was a real pleasure.

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