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Brussels, 26 April 2012
EU € 2.7 billion 10-year bond for Portugal strongly oversubscribed
The European Union (EU) today issued a € 2.7 billion benchmark bond with 10 years maturity, seeing strong and widespread investor demand with books almost three times oversubscribed. The proceeds will be on-lent to Portugal, as part of its financial assistance package and are adding to a € 1.8 billion 26y funding operation of last week. Both transactions together bring the average maturity of the EU loans to Portugal from 10.8 years to 12.2 years. The transaction was carried out by the European Commission on behalf of the EU under the European Financial Stabilisation Mechanism (EFSM).
The new 10y operation, concluding EU's funding activities for the first half of 2012, is a further successful EU issuance, following bonds with 30y, 20y and 26y maturities in January, February and on 17 April 2012.
Despite a very strong order book of € 7.8 billion, the size of today´s transaction was limited by the overall funding requirement of Portugal. This allowed to price at mid-swaps +56 basis points, tighter than the initial guidance of +60 area.
The € 2.7 billion bond matures on 4 April 2022, pays a coupon of 2.75% and yields 2.794%. Funding cost will be passed on to Portugal without any margin; the disbursement to Portugal is foreseen for 4 May 2012, the settlement date of the bond.
The maturity is determined by the targeted maximum average maturity of 12.5 years for loans to Portugal. The Commission considers the successful issuances as a strong sign of confidence in the EU as a prime issuer and in the stability measures of the joint EU/IMF programmes.
The order book opened on 9h30 CET and was closed within 45 minutes only, containing orders from almost 150 individual investors.
Geographically, the most demand came from within Europe, where Germany had 28% of the allocation, followed by UK/Ireland (17%), France (13%), the Nordic Countries (9%), Benelux (8%) and Switzerland (5%). Other Europe had 8%. Outside Europe, 6% was allocated to Asia, 5% to US offshore and 1% to the rest of the world.
In terms of investor type, asset managers were in the lead with 38% of the allocation, followed by insurances/pension funds (23%), Central Banks/Official Institutions (18%), banks (18%) and others (3%).
Joint lead managers were Crédit Agricole CIB, DZ Bank, J.P. Morgan, Morgan Stanley and Société Générale.
Co-leads were Bank of America/Merrill Lynch, Citibank, Commerzbank, Credit Suisse, Royal Bank of Scotland, Santander, UBS and Unicredit.
Portugal, as well as Ireland, receives loans from financial assistance packages, jointly provided by the EU (EFSM), the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF). The agreed external assistance for Portugal amounts to up to € 78 bn over 3 years, where the EU (EFSM) contributes € 26 bn. Until to date and including today´s issuance, the EU via the EFSM has disbursed € 20.1 bn to Portugal.
Since January 2011, including the recent transaction, the EU has raised in total € 39.7 bn from the bond market, used mainly for the EFSM (€ 38.5 bn) and the remainder for a Balance of Payments loan programme. The EU's remaining funding requirements in 2012 are € 2 bn, to be raised from September 2012.
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.
EU investor relations website: http://ec.europa.eu/economy_finance/eu_borrower/