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FMO, in partnership with TCX (The CurrencyExchange Fund),has set a new milestone in frontier currency markets with the issue of the first everHonduras Lempira (HNL) linkednote in the off-shore market for a notional amount of USD 10 millionand with a maturity period of two years.The HNL issuance topped a quartet of funding activities in frontier currency notes by FMO’s Treasury in April, which included the bank’s largest note linked to the Georgian Lari (GEL) for anominal amount of USD 32.7 mln, its third issuance attached to the Myanmar Kyatt (MMK) forUSD10 mln and a USD 5.0 mln issue linked to the Costa Rican Colon (CRC).
The frontier currency linked notes are swapped to U.S. dollars with Amsterdam-based TCXwith the intention of facilitating local currency market funding. TCX usually hedges the exchange risk of investments in projects in these countries. However,TCX may also need to lower its exposures to individual currencies. By finding investors willing to take frontier market risk through FMO’s notes and hedging them,TCX reduces its own risks and creates additional capacity in currency solutions for the lending business of its clients.
Matthijs Pinxteren, Director of FMO’s Treasury,said:“Foreign exchange rate volatility is frequently one of the greatest risks to the viability of investments in those countries with very
thin or non-existent currency markets. Through our partnership with TCX, we are taking the lead in helping to develop the depth and liquidity of these markets by issuing offshore frontier currency notes to fund our activities in places,such as Honduras, where this has often never been done before.”
Bank of America Merrill Lynch was arranger, structurer and distributor of FMO’s Honduras Lempira-linked note, while Citibank handled the Georgian Lari and Myanmar Kyatt issuances
and ING enabled the transaction for the Costa Rican Colon.