Municipality Finance | Banking & Finance

Sustainable Finance for Social Growth

PROJECT DIRECTED BY

WRITTEN BY

Jamie Waite

Romana Moares

Municipality Finance “We are unique when it comes to our business model,” says MuniFin’s President and CEO Esa Kallio. ”We are a financial institution and as such the third largest in Finland. We fund 100% of our operation through international capital markets, and then sell those funds in open competition with external banks to our customers who can be divided into two groups - the Finnish municipal sector and the Finish social housing sector, which I prefer to call central government subsidised housing.”

The human factor He further explains that in the segments where the company operates, MuniFin holds around 60% market share. “The municipal sector accounts for about 60% of our lending, with the housing sector representing 40%. Volume-wise, our total assets as of June 2021 totalled around 46 billion euros. In terms of people, we are still quite small, with about 160 employees working in our offices in Helsinki. Interestingly, although the company is publicly owned, we are not civil servants, most of our employees have a background in finance.”

Sustainable Finance for Social Growth Municipality Finance Plc is one of Finland’s largest credit institutions with a bold mission to build a better and more sustainable future with its customers, with social responsibility at the heart of its operation.

2

Issue 104 · Business Enquirer Magazine

M

uniFin has a special role in Finland and its activities are geared towards supporting the creation and development of society’s welfare.

The company is jointly owned by Finnish municipalities, the public sector pension fund Keva and the Republic of Finland. Its customers are domestic entities but the company operates in a completely global business environment. It is the one of the most active Finnish bond issuers in international capital markets and the first Finnish green and social bond issuer.

MuniFin’s customers include Finnish municipalities, joint municipal authorities, municipally controlled entities and non-profit housing organisations. MuniFin grants financing for environmentally and socially responsible investment targets such as public transport, sustainable buildings, hospitals and healthcare centres, schools and day-care facilities.

That is also the case for Esa Kallio, who assumed his position as CEO and President of Municipal Finance in 2018, following an impressive track record in finance. He has worked for MuniFin since 2005, most recently heading the company’s funding and treasury functions. He has a clear vision where he wants to take the company in the post-pandemic environment and openly admits that people are key to achieving any vision.

“Good relationships at the workplace and good teamwork are essential. My philosophy has always been that I want to work with a team, my role being that of a team member. We go together through thick and thin, with transparency and trust as essential elements, enabled by open communication.

As a team, we are having continuous discussions, and together we are creating guidelines and targets that we want to achieve. Staff engagement is essential, and in this way everyone is motivated to work hard towards those goals.”

Business Enquirer Magazine · Issue 104

3

Finance Feature

Bringing ESG funding solutions to Europe

We are proud to have supported MuniFin’s inaugural green bond in the Sterling market. The transaction added a fourth currency to MuniFin’s green offerings.

“Over 40% of our underwritings through Dublin fall under the ESG umbrella. As well as Euros and U.S. Dollars, we are seeing increased supply in Sterling, Canadian Dollars, Aussie Dollars and in emerging markets currencies.”

Laura Quinn Managing Director, Head of Primary Markets, TD Securities Dublin

He points out that getting the right people is not easy, as MuniFin competes for the same type of talents as the banks and other financial institutions. Still, the company offers some unique benefits, such as a high degree of flexibility, a flat organisational structure, additional health insurance and a clear focus on social and environmental development, which many people these days find highly attractive. The combination of domestic (lending) and international (funding) markets is also very interesting, and the fact that MuniFin plays a very important role in Finnish society and the development of its welfare are also factors that make the company stand out in the financial sector.

Special status Speaking about current markets, Esa Kallio explains that Finland’s economic and employment situation exceeded expectations in 2021 and reached a surprisingly good level. The central government’s Covid-19 support package ensured that municipalities have not had to shoulder the negative economic effects of the pandemic.

niFin’s obligation to comply with the leverage ratio capital requirement. This has allowed the company to increasingly transfer the benefit of negative interest rates to its customers, making its loan financing even more affordable than before. This change in the credit terms took force in October, and its benefits will begin to have a wider impact in the interest expenses of MuniFin’s loan customers in 2022.

“Once again, our funding succeeded excellently, and the availability of funding in the international capital market remained good. Thanks to our effective funding, we were again able last year to ensure affordable financing for our customers,” says Esa Kallio.

Virgin Media engineers in the field

“The municipal sector’s demand for financing was lower than expected in 2021, while the demand for state-subsidised housing finance grew moderately, also as expected. MuniFin’s market position is strong, and we continue to be by far the largest single credit institution offering long-term loans for our customer base.”

“Despite the temporarily improved financial situation, the fiscal sustainability gap and structural problems in the public economy continue to exist. In 2022, we therefore expect the demand for financing in the municipal sector to return to the pre-pandemic level.”

The European Union’s changes to the capital adequacy regulation were applied at the end of June 2021. Under the new regulation, MuniFin gained the status of a public development credit institution, which significantly eases Mu-

For more information, visit tdsecurities.com Business Enquirer Magazine · Issue 104

® The TD logo and other trademarks are the property of The Toronto-Dominion Bank. © Copyright 2021 by TD Securities. All rights reserved.

5

Finance Feature

Municipality Finance Building a better future

TD Securities Global Platform As a leading corporate and investment bank, TD Securities offers a wide range of capital markets products and services. With more than 4,700 professionals operating out of 15 offices around the world, we provide trusted advice, industry-leading insight, access to global markets, and value for our clients every day.

European Hub Operating in Ireland for more than 20 years, we opened our new European Hub in Dublin in 2019. Trading as TD Global Finance (TDGF), we leverage The Toronto-Dominion Bank (TD) strong balance sheet and high credit rating and operate as a fully licensed broker dealer regulated by the Central Bank of Ireland. Our dedicated team of approximately 120 employees help extend our global reach and knowledge to serve clients on the ground in Ireland and throughout Europe.

Our Origination and Syndication team are global lead underwriters of fixed income investment-grade products across all G10 and EM markets for our European clients in the Supranational Sub-sovereign and Agency (SSA), Financial and Corporate sectors.

ESG & Multicurrency Capabilities Our team in Dublin has issued over 100 trades in 11 currencies with 30 global issuers this year. Approximately 40% of these trades fall under the ESG umbrella. Our Sustainable Finance & Corporate Transitions group provides environmental, social and governance (ESG) advisory services to our worldwide client base across our Global Markets and Corporate & Investment Banking businesses.

Our firm has been actively involved in the green bond market since 2010, participating in over EUR 26 billion of green bond underwriting to date. We are proud joint lead managers on inaugural deals for European clients -- including Municipality Finance and the EU Commission.

Find out more When your business is looking to raise debt globally, our team of seasoned professionals bring together skills and experience from across international debt markets. Take advantage of our extensive networks, proven history of success and ability to exceed the needs of issuers around the globe. Spread across Toronto, New York, London, Dublin, Singapore and Tokyo, our debt capital markets team provide services to clients in all major currencies.

As for every company in every sector including finance, sustainability is a key topic, he affirms.

“Our customers play a key role in mitigating climate change and promoting the green transition.

We support our customers in this transition by offering them green finance and sharing our expertise. In 2021, the demand for our green finance continued to grow, and the social finance that we launched in 2020 established its position among our customers.”

Reflecting on the future, he notes that Finland has ambitious goals in terms of the role the municipal sector will play. “In 2022, the new health and social services reform will be reflected in the company’s operations as practical preparation to act as a financing counterparty. What we can do for the municipalities is to help them do more in terms of reducing CO2 emissions and increased focus on the environmental side.

adjust the operation in line with the special status obtained in 2021. As a public development credit institution, MuniFin has decided to change the conditions of its long-term customer loans with variable interest rates in a way that will allow customers to benefit from negative reference rates better than before. This is a positive development for our customers.”

In concluding, Esa Kallio affirms that going forward, MuniFin’s vision of building a better and more sustainable future with its customers will remain unchanged. “Social responsibility has been part of MuniFin’s DNA ever since the company was established in 1989. That is at the heart of everything we do. We will continue helping local authorities to maintain and to develop the welfare system in Finland. In this respect, MuniFin will continue to play an important role in enabling the achievement of environmentally and socially responsible investment targets.” www.munifin.fi

“Regarding the future, we are in a nice situation.

We have a good business model, and we can now

Learn more about our corporate and investment banking capabilities.

Leaders in Post-LIBOR Solutions As market-leading advisors in post-LIBOR and riskfree rate funding solutions around the globe, TD acted as a joint-lead manager on the SSA market’s first ever floating-rate notes linked to SONIA and ESTR issued by the European Investment Bank, as well as joint-lead manager on EIB’s inaugural SOFR floating-rate note. We also acted as a joint-lead manager on IFC’s 5y USD 2bn trade in August 2021 which was the first trade to utilize SOFR mid-swaps as its primary pricing reference and marked a significant market milestone in the shift away from LIBOR

6

Issue 104 · Business Enquirer Magazine

Business Enquirer Magazine · Issue 104

7

Municipality Finance www.munifin.fi

info@busenq.com www.busenq.com