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Brussels, 14 September 2011
EU issued € 5 billion 10y bond to finance loan for Portugal
A € 5 billion bond with 10 years maturity has been launched today by the European Commission on behalf of the European Union (EU). The operation took place under the European Financial Stabilisation Mechanism (EFSM). The funds raised will finance a further loan to Portugal, which receives lending as part of the financial assistance package.
The new bond is the second with a 10 years maturity placed by the EU under the EFSM so far. The € 5 billion benchmark matures on 21 September 2021, pays a coupon of 2.75% and was priced at mid-swaps +20 basis points.
Investor interest was solid and books including about 100 accounts were closed within less than three hours, having subscriptions of about € 7 billion. Successful placement shows the confidence of markets in euro zone.
Substantial investor demand came from across Europe - in particular from France (23%), Germany/Austria (22%) and the UK (17%) - as well as from Asia (12%). The other Europe represented 24 %, in particular Benelux, Nordic Countries and Switzerland. In terms of investor type, demands from banks and financial institutions were the most important (56%), followed by investment managers (21%), Central Banks (17%) and insurance/pension funds (5%).
Joint lead managers were Barclays, BNP Paribas, Commerzbank, HSBC and UBS. Co-leads were Bank of America Merrill Lynch, BBVA, Citibank, Credit Suisse, DZ Bank, Goldman Sachs, Morgan Stanley and Société Générale.
Disbursements to Portugal will be made on 21 September 2011, the settlement date of the bond.
Portugal receives financial support as part of a joint assistance package from the EU (EFSM), the European Financial Stability Facility (EFSF) and the International Monetary Fund. Under the EFSM two previous loan disbursements to Portugal have been made in May and June 2011 for a total of € 6.5 billion. Complementary loan disbursements have been made by the EFSF and the IMF.
In the coming weeks, the EU, through the EFSM, plans to launch further bonds for € 5 billion, in one or two transactions with maturities from 5 to 15 years. For the remainder of 2011, the EU intends to issue one further benchmark bond. The combined upcoming funding in 2011 will be used for loans to Ireland and Portugal.
The EU, rated triple-A by the major rating agencies, funds its loans by issuing debt instruments in the capital markets.
Issuances by the EU are executed by the European Commission's financial operations department located in Luxembourg.
Assistance package for Portugal
For Portugal, the financial assistance package was agreed by the Eurogroup and the EU's Council of Economics and Finance Ministers on 17 May. The financial package covers Portugal’s financing needs of up to € 78 billion. The European Union (EU), through the use of the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) both provide loans up to € 26 billion each, to be disbursed over 3 years. Further support is been made available through the International Monetary Fund (IMF) with loans of up to € 26 billion.
Under the EFSM, two previous disbursements to Portugal have been made: € 1.75 billion on 31 May and € 4.75 billion on 1 June 2011. Two further disbursements have been made by the EFSF: € 3.6 billion on 22 June and € 2.2 billion on 29 June 2011. Further disbursements have been made by the IMF.
The EU as a borrower
The European Commission is empowered to contract borrowings on the behalf of the EU for the purpose of funding loans made under the European Financial Stabilisation Mechanism (EFSM). The EFSM is a Treaty-based mechanism, covering all EU Member States. Under the EFSM, the EU can borrow up to € 60 billion to on-lend to any EU Member State in financial difficulties. It has currently been activated for Ireland and Portugal.
Further, under the Balance of Payments (BoP) facility, support is available to Member States which have not yet adopted the euro and face difficulties as regards their balance of payments. Currently, Romania, Latvia and Hungary have benefitted from the BoP facility.
Investor relations website: http://ec.europa.eu/economy_finance/eu_borrower/